1. ECONOMIC NOTES
CHAPTER: 1 FACTORS OF PRODUCTION
1. FOUR FACTORS OF PRODUCTION
Factors of production are all inputs needed to produce goods and services
1.1 Natural resources
Natural resources refer to all means made available by nature to be used as inputs in
the production process such as water and timber etc.
Economists divide natural resources into economic goods and free goods
Economic goods are scarce resources and people are willing to pay e.g. minerals
Free goods are free available from nature e.g., air that we breath
1.1.1 Characteristics of natural resources
A. Natural resources are scarce
In relation to people’s demands (quality) and in quality needed in production process
B. Natural resources have a price
People to use natural resources they have to pay for them.
C. Uneven distribution of natural resource
Some parts of the world are rich in natural resources some are not, SA are is rich in mineral
resource and Japan does not have mineral resources.
D. Making natural resource useful
Most natural resources need to be changed to make them useful e.g. wood transformed to
be furniture.
E. Economic significance
SA export large rage of natural resource and it benefits the economy of the country
F. Agriculture, forestry and fisheries
Agriculture, forestry and fisheries provide for all South Africa’s needs and agriculture is
relatively under-developed
G. Mining
SA has a large variety of mineral resources of high quality and quantities
Gold provide the country’s largest mineral income
SA earn billion of rands from gold every year
H. Remuneration and other payments
Payments for natural resources are known as economic rent.
The owner of natural resources must be remunerated for the use of these resources in
production process.
I. Economic rent
The amount of money that a natural resources earns over above its transfer earning

2. 1.2. Labour
Nothing can be manufactured without people
Are all physical or mental work done by people
Human input in the production process
1.2.1 Characteristics of labour
A. Income as a goal
The goal of the people to work is to earn money as they want to satisfy their needs
B. Part played by owner
Labour can not be separated from its owner
C. Not storable
Labour can not be store or kept
D. Supply cannot suddenly increase
A country labour force is generally made up of people between the age of 16 and 64.
E. Economic significance
Production can not take place without physical and mental effort.
Suitable labour force is needed to increase its production in order to grow
F. Remuneration and other payments
Remuneration of labour consist of salaries or wages
1.3 Capital
Man made physical goods used to produce other goods and service e.g. tools, machines,
computers and money
1.3.1 Characteristics of capital
A. Machines wear out
Machines break down over time
B. Money capital can be changed to any type of capital
Money can be change into any type of asset a business want to buy
It can also be used to settle the account of the business, like telephone or electricity
accounts
C. Impossible to change real capital
Real capital lose its mobility or is difficult to use it for different purpose
D. Capital is expensive
Entrepreneur need to budget for capital because is expensive
1.3.2 Function of capital
A. Tools to add form utility
Capital goods provide the tools to change the form of natural resource into useful goods and
services to satisfy the needs and wants of the consumer.

3. B. Mass production is possible
The use of machinery and other tools speed up the production process which result in mass
production
C. Improve the quality of the products
Machine are precise than people and can reduce mistake than might be made by people
D. Standardisation is possible
Machine can produce the product that look the same and that meet the same standard
quality
E. Sales on credit are possible
Money capital allows business people to sell on credit and only enterprises that have
sufficient money can sell on credit.
F. Economic significance
Economists consider savings or creation of capital as the starting point for economic growth
and progress
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1.4 Entrepreneurship
The process of bringing together natural resource, capital and labour and using them to
produce or sell products or services.
Entrepreneur are the people who start, manage and control bisiness, they take risk and
make critical decisions to ensure the successful running of the business
1.4.1 Characteristics and functions of entrepreneur
A. Combine other factors of production
Entrepreneur combines the other factors of production to produce goods and services
Entrepreneur need to get together enough capital natural resources and skilled labour at the
right time and place and in the right quantities
B. Initiative
Entrepreneurs need to be able to come up with new business idea or plan to make a profit in
the market.
C. Risk
Entrepreneurs needs to take a risk, to pay for any losses if the business ideas fails or if the
business goes bankrupt.
D. Makes decisions
Entrepreneurs make decisions on what to produce, where to set up the business and who to
produce for .
E. Economics significance
Entrepreneurs play a very important role in contributing to growth and progress in South
Africa’s economy
F. The formal sector can not provide employment to all of South Africa’s population.
Therefore entrepreneurs in the informal sector who start up small businesses play an
important role in providing employment