An easy explanation on factors of production
In order for a factory or shop to make something or deliver a service, they need certain things. Think about a bakery.
They need the different ingredients to bake the bread and cakes, they need a place to bake it as well as a stove and a mixer, they need a baker and they need some money to buy all the ingredients and they also need somebody that started the bakery and are in charge.
All of these things we call the 'factors of production.'
All businesses do not produce (make) products, some businesses deliver a service like for instance a hairdresser, a teacher and a lawyer. Even if they do not make something, they trade their knowledge and talents for money. These types of businesses are part of the service industry.
There are 4 main factors of production that is needed in a successful business - land, capital, labor and entrepreneurship.
Lets have a look at each one.
Land
This can also be referred to as 'natural resources'. This is where the whole production process starts. It is the resources (the things) we get from nature that we will use to manufacture other goods. These are also called the raw materials.
This factor can seem like the most important part, because if there are no resources, nothing can be made.
This is also the area where a lot money can be made, since this factor can be sold and there will be a lot of jobs for people who have to 'harvest' these resources to be used.
It is very important that we look after the Earth's resources, because some of it may be used up - these we call non-renewable resources.
- What type of resources will you use to manufacture the following?
- furniture
- paper
- jewellery
- cars
- bread
- We get 'renewable' and 'non-renewable' resources on Earth. Can you explain the difference and five 3 examples of each?
Capital
The second factor is called 'Capital'. Even though capital usually means money, it is more than that. It can be the money needed to start the business, which is the 'start up cost', or it can be all the machinery and vehicles of a business - any money that is put into the business, or anything in the businesses that can be sold for money is called capital.
Labour
What will a business be if there are no people doing the jobs or producing the goods? This is the other important factor called 'labour'.
There are two types of labour. Physical labor which mean you will use your body to work and then mental labor which means you will use your brain to complete the work. Some businesses require people to do both types. Thing are also changing a lot in modern times since a lot of machines are now used to do the 'hard labor.'
Entrepreneurship
The last factor of production is the 'entrepreneur'. That is the person who starts the business, takes the risk and has the idea. You need an entrepreneur to bring all the different parts of a business together and make sure the business makes a profit.
- What is a 'profit'?
- Why does a business need to make a profit?
- Do you think an entrepreneur has to have certain characteristics? (things they can do)? Lets have a look at the video
- Do you think you can be an entrepreneur? Why do you say that?
- Are you creative?
- Name the 4 factors of production.
- Think of something that you can make and sell. Remember to work out how much it will cost you to make (produce), how much you will sell it for and what your profit will be. (You can decide on a day when everyone will sell their products and you can have an entrepreneur's day.)
