Factors of production

Human activity can be broken 0)__B__ into two component parts, producing and 1)_____. When there is production a process of transformation takes place. Inputs are converted into an output. The inputs are classified and referred to as, land, labour, and capital. Collectively the inputs are called 2)_____ of production.

When land, labour, and capital are combined in order to produce something, a fourth factor is required. Goods and services do not 3)_____ themselves but need some conscious thought process in order to plan and implement manufacture. This thought process is often called 4)_____. Bill Gates the founder of ‘Microsoft’ the successful software company is an entrepreneur. It is hard to say what it is that makes Bill Gates more financially successful than say the local 5)_____ of computers.

The difficulty of classifying and quantifying entrepreneurship leads some economists to leave it out when listing the factors of production. Others prefer to include entrepreneurship as a factor, whilst recognizing the problems that doing so presents. Entrepreneurship however, might be defined as 6)_____ taking.

Land – the land itself, and 7)_____ materials such as oil and minerals beneath it. Trees grown by foresters are not classed as land because they have been deliberately grown. Trees in a natural rainforest are a natural resource and thus classified as land. The reward for letting others use land is called 8)_____.

Labour – human effort, mental or physical. Be careful not to confuse this with enterprise. The reward to labour is termed wages.

Capital – man made goods used to produce other goods. E.g., a tractor, a factory, an industrial robot. Not money, money is used to buy factors of production – it is not a factor itself. The reward for investing in capital is called 9)_____.

Enterprise (Entrepreneurship) – the risk taking activity that utilises land, labour and capital to produce goods or services in the expectation of a future reward. That reward is called 10_____ in economics.

0 A up B down C in D out

1. A selling B spending C consuming D buying

2. A factors B means C things D instruments

3. A sell B generate C produce D consume

4. A development B entrepreneurship C business D undertaking

5. A seller B buyer C industrialist D creator

6. A difficulty B risk C venture D interest

7. A natural B initial C valuable D raw

8. A licence B rent C hiring D charter

9. A interest B dividend C share D funds

10. A revenue B benefit C interest D profit

Exercise 10. Complete the text using the words from the box.

composite falling collapse management

calculated revised alternative intervene

restricted risk commercial weightings