Overview
This lecture introduces the four factors of production central to economics: land, labor, capital, and entrepreneurship, and explains their roles in creating goods and services.
The Four Factors of Production
- Production processes require four input categories: land, labor, capital, and entrepreneurship.
- Land includes all natural resources needed for production (e.g., soil, water, air, energy).
- Labor is the human effort, physical or mental, used in production.
- Capital refers to man-made tools, buildings, and equipment used to produce other goods or services.
- In economics, capital does NOT include financial assets like money.
- Entrepreneurship is organizing and combining the other factors to efficiently produce goods or services.
Technology and Entrepreneurship
- Technology can sometimes be listed instead of entrepreneurship as a factor of production.
- In economics, technology means the knowledge or know-how to combine production factors, closely related to entrepreneurship.
Types of Goods Produced
- Capital goods are used to produce more goods (e.g., factories, machinery).
- Consumption goods are used for personal enjoyment and do not help produce other goods (e.g., food, clothing).
- Societies must balance producing capital goods and consumption goods due to limited resources.
Key Terms & Definitions
- Factors of Production — Inputs needed to produce goods and services: land, labor, capital, entrepreneurship.
- Land — Natural resources used in production.
- Labor — Human work, both physical and mental, in production.
- Capital — Man-made goods used to produce other goods, not financial assets.
- Entrepreneurship — The ability to organize and manage the other factors of production.
- Consumption Goods — Products for direct use by consumers.
- Capital Goods — Products used to produce other goods.
- Technology (in economics) — Know-how to combine factors of production efficiently.
Action Items / Next Steps
- Review differences between capital and consumption goods.
- Prepare to discuss the trade-off between producing capital vs. consumption goods in the next class.