Factors of Production

An economy owns factors of production which are used in production process. Factors of production are also known as inputs of the production process. Level of factors determines the level of output of the country which in return determines the development level and the standard of living in an economy. Apart from broad aspects of factors of production, those can be explained in simple way. Every factor of production gets rewarded for their contribution at the end of the production process.

There are 04 types of factors of production and they are:

  • Land
  • Labour
  • Capital
  • Entrepreneurship


Land includes all the natural resources used in production process which varies from land used for the production floor to water, forests and other natural resources. As the reward for the land owner of the land receives rent from the producer. Many countries suffer from huge scarcity of land and they purchase from other countries who hold surplus of natural resources and pay rent for it.


Labour includes mental and physical effort used in production process. Under the classification of factors of production both manual and intellectual labour are listed as labour. So that effort of every employee involved in the production process from production floor to top management is considered as labour. Owners of labour receive wages as their reward for their contribution on production process.


Originally capital in business referred to the financial resources used in the business. Since there are many intellectual capital used in modern production processes the definition of capital has expanded to any man made resource used in production process. This wide definition covers money, technology and machineries used in production process. The owner of the capital receives interest as the reward for the contribution in the production process.


The entrepreneurship controls all the other factors and accept the risk of business. This is basically the owners who manage the business while controlling other factors employed in the business. If the entrepreneurship is inactive all the other resources will be inactive and therefore it is considered as the most vital factor of production. The entrepreneurship is rewarded with profits for their contribution on production process.

Share this post

Related Posts