First, labor is considered to be heterogeneous, which refers to the idea of how the efficiency and quality of work are different for each person.

The following are several characteristics of labor in terms of being a factor of production: Note that work performed by an individual purely for his/her personal interest is not considered to be labor in an economic context. The income that comes from labor is referred to as wages. Productivity is measured by the amount of output someone can produce in each hour of work. The value of labor also depends on human capital, which is determined by the individual’s skills, training, education, and productivity. Labor itself includes all types of labor performed for an economic reward, such as mental and physical exertion.

For example, an artist producing a painting or an author writing a book. Labor as a factor of production refers to the effort that individuals exert when they produce a good or service. However, land differs from the other factors of production because some natural resources are limited in quantity, so its supply cannot be increased with demand. The income that comes from using land and its natural resources is referred to as rent.īesides using its natural resources, land can also be utilized for various purposes, such as agriculture, residential housing, or commercial buildings. Non-renewable resources consist of resources that can be depleted in supply, such as oil, coal, and natural gas.Īll resources, whether it is renewable or non-renewable, can be used as inputs in production in order to produce a good or service.Renewable resources are resources that can be replenished, such as water, vegetation, wind energy, and solar energy.Natural resources can be divided into renewable and non-renewable resources. Land is a broad term that includes all the natural resources that can be found on land, such as oil, gold, wood, water, and vegetation. In order to do so, the input will go through a production process and various stages to reach the hands of consumers. In factors of production, the word “production” refers to a process of transforming inputs into outputs, which are finished products that can be sold as a good or service.

The four factors consist of resources required to create a good or service, which is measured by a country’s gross domestic product (GDP). The factors are land, labor, capital, and entrepreneurship. Updated MaWhat are Factors of Production?įactors of production is an economic concept that refers to the inputs needed to produce goods and services.

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