All resources required for the production of goods and services are traditionally subdivided into land, capital, labor, entrepreneurial ability, information and science. All these are factors of production. In any production system, factors of production are converted into specific products or services.
From the standpoint of the traditional economic model proposed by Adam Smith, factors of production include land, labor, capital and entrepreneurial activity. Many modern economic models also include science, information, and time. Although not everyone recognizes their obligation and necessity.
The main factors
Land is a natural resource required for growing food, agriculture, and the construction of various facilities. Also, this factor includes raw materials.
Capital - monetary and property resources needed to make a profit. Sources of capital are family savings, enterprise profits, state budgets, and various funds. Free or temporarily free capital can be used to create new industries in order to make a profit.
Labor is the labor activity of a person aimed at the production of goods or services. In a planned economy, labor was not considered a commodity, since managers did not experience a shortage of workers, and workers had constant employment and guaranteed wages. In a market economy, labor is a commodity. Employees sell their ability to work, and employers pay for work in accordance with its quality, quantity and the need for this type of work.
Entrepreneurial abilities - the physical and mental activity of a person or a group of persons, aimed at combining all the listed factors of production, organizing this production and managing it. An entrepreneur is required not only to have theoretical and practical knowledge in many areas related to his activities, but also to be able to make responsible decisions and take reasonable risks.
Additional factors
Science is optional. It represents scientific achievements necessary for many types of industries in order to improve the consumer properties of goods, improve the quality of equipment and technological processes, introduce progressive methods of labor and enterprise management.
Time is also an optional factor in production. But in some cases, the time it takes to create something becomes a decisive factor. And therefore, to gain in time, you have to attract more capital and labor.
Information is often not a separate factor of production. But with the development of IT technologies and their widespread implementation in all business processes, information as a factor is becoming increasingly important. Information includes not only information technology, but also information about competitors, potential buyers, marketing information, etc.
