This article on Factors of Production Meaning…
Factors of Production- Meaning
Production of goods and services requires the use of production factors, also called agents of production. The transformation of inputs into output involves the process of production. Fraser defines the “factor of production as a group or class of productive sources.”
Classification of factors of production-
Factors of production have been classified as land, labour, capital, and entrepreneurship.
1. Meaning of Land-
The term ‘land’ has been given a special meaning in economics. It does not mean soil, as in ordinary speech but it is used in a much wider sense. Land stands for all natural resources which yield an income or which have an exchange value. It represents those natural resources that are useful and scarce. In the words of Marshall, land means “the materials and the forces which nature gives freely for man’s aid, inland and water, in air and light and heat.”
2. Meaning of Labour-
The contribution of labour to the national product and income depends on the size of labour and its quality. By the quality of labour the means how much productive it is, what is its level of productivity.
- Characteristics of labour-
- Labour cannot be separated from the labourer himself, whereas land and capital are distinct from their owners i.e. landlords and capitalists.
- The labourer does not sell himself; he sells only his labour.
- Labour is a perishable factor and it is not possible to store it for future use.
- Labour must have skill i.e. proficient in his working.
3. Meaning of Capital-
Capital is that part of man’s wealth which yields an income. Capital has been rightly defined as “produced means of production.” It is a man-made instrument of production. Capital thus consists of those physical goods which are produced for use in future production. Machines, tools and instruments, factories, canals, dams, transport, equipment, stocks of raw materials are some of the examples of capital. All of them are produced by man to help in the production of further goods.
Capital may be classified into fixed capital and working capital.
- Fixed Capital and Working Capital-
Fixed Capital are durable use producer goods that are used in production again and again till they wear out. Machinery, tools, railways, tractors, factories etc., are all fixed capital.
Working Capital, on the other hand, are the single-use producers’ goods like raw materials, goods in process and fuel. They are used up in a single act of production. Moreover, money spent on them is fully recovered when goods made with them are sold in the market.
- Human Capital-
By human capital is meant the stock of people equipped with education, skills, health, etc. It has now been found that the rate of growth achieved in developed countries cannot be wholly explained by the increase in physical capital and advances in technology. A good part of economic growth has occurred due to the accumulation of human capital.
4. Meaning of Entrepreneurship-
An entrepreneur is a person who on the basis of his work and ability combines other factors of production for an efficient result.
- Functions of Entrepreneur-
- The entrepreneur bear risk and uncertainty of the production work. He is a manager and risk-taker.
- Another important function of an entrepreneur is to introduce innovations.
- He works for initiating a business enterprise and bringing about resource coordination.
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