factors of production

3.  Factors of production are defined as all the
resources that are required in the production
process to produce goods and provide services to
satisfy consumption.
THERE ARE FOUR FACTORS OF PROCTION
1. Natural resources/Land
2. Labour
3. Capital
4. Entrepreneurship

4.  Natural resources are all the resources that are available from nature free
of charge .examples are land, water, mineral deposits and timber.
 Land is the fundamental factor of production
 Land are all the natural resource that are available on the surface of the
earth and beneath the surface.
 Land is the most important factor of production because without land
production cannot be possible.
 Factories need to be built on the land for production, mineral deposits
need to be extracted from land

5. Free gift of nature
Limited in supply
Differ in variety
Land is immobile
Passive factor of production
Land has alternative uses
Land is indestructible

6. Land is an important factor of production which
helps in the production of goods and services.
The mineral deposits extracted from nature are
traded world and increase the country’s export
As export income increases then more money
coming into the economy leading to increase in
economic growth

7.  Labour consists of the physical and mental effort applied by human
beings in the production of goods and services.
 Labour is a human factor of production and is an economic activity
of human mental and physical effort.
 Labour is divided into three namely:
 Skilled labour- employees that are professionally trained with skills
required in the production process, e.g. Engineer.
 Semi-skilled labour- this includes employees who have completed
grade 12 and have undergone few months of in-service training, e.g.
Carpenters.
 Unskilled labour- all employees who finished grade 7 and have no skills
required in the direct production process , they are indirect labours, e.g.
Cleaners.

8. Active factor
Labour is perishable
Human factor
Weak bargain power
Cannot be separated from the labourer
Labour is mobile
Labourers sell their labour not themselves
More wages less work
Different in efficiency

9. No production in a country can take place without
the employment of labour
Employees are employed to apply their mental and
physical effort in the production process
The country’s manufacturing industry grow due to
efficient labourers
They also pay tax to the government which increase
the country’s income.

10. Capital is defined in book-keeping as the amount of
money invested to start and operate the business.
 Capital in economics is defined as being part of wealth.
Wealth is any resource owned by a person or business.
When wealth is used in the production process is called
capital

11. Capital are all the capital goods that are used in the
production process to produce goods and services.
Capital goods form most part of the non-current
assets of the business, capital goods include
machinery, equipment, buildings and vehicles.
Capital has four features:
Capital is made by people , e.g. Machinery.
Capital is mobile.
Capital is part of wealth.
Capital is elastic in its supply

12. Type of capital Explanation Example
Fixed capital
Capital that does not
change
shape during production
Machinery , tools
Working capital Capital that is used up
during production
materials
Venture capital Capital invested at the
start
up of a business
cash

13. Capital is important to fasten the production process
because of efficient machineries.
The government rent factories to people to conduct
economic activities
When they pay the interest to the government money
flows into the economy
Human capital is important in the production
process.

14. Enterprise-is an entity or organisation that is created for
commercial purpose and it undertakes economic activities of
producing goods and services to make profit.
For there to be an enterprise there need to be an entrepreneur

15. Entrepreneur- is a person who sees an opportunity to
start a business in order to make profit.
The entrepreneur conduct the economic activities in
the enterprise.
Entrepreneurship is the process of combining all the
four factors of production in one place and use them
to produce goods and services.
An entrepreneur has to take decisions that are
associated with risks.

16. The entrepreneur makes the following decisions:
1. What to produce?
2. How to produce?
3. Where to produce?
 The entrepreneur ensures that he combine the
exact natural resources to produce the goods.
 The entrepreneur looks for the best skilled labourer
to produce the goods.
 He decides on the place and the production method

17. Features of entrepreneur:
1. He must be a risk taker
2. He must be a good administrator
3. He must process complete knowledge
4. He must be a man of action.

18. The theory of cost of production depends on the
combination of factors of production.
Entrepreneurs ensures that they choose the best
factors of production to use in the production
process.
Entrepreneurs generate profits from the sale of
goods and services.
As their business profits increases so is the economic
growth of the country.

19. Factors of production are employed in the
production process to produce goods and services.
Because the factors of production are employed in
the production process therefore they must be
rewarded for their services.
In economics the reward for factors of production is
called remuneration
All the factors of production receive their own
remuneration different from the other.

20. Natural resources- the land whereby the
production process is undertaken is owned by
people.
The remuneration for natural resources is in a form
of rent.
Labour- the goods and services are produced by
employees in the production process.
The remuneration for labour is in a form of salaries
and wages

21. Capital- capital is an investment in the production
process such as the factory building and
tools/machinery
the remuneration for capital is usually interest.
Entrepreneur- an entrepreneur as a person who
start a business with a primary goal of making a
profit.
The remuneration for entrepreneurship is profit.

22.  Factors of production includes all the inputs used in
the production process
 Without factors of production , no production will be
possible
 Combination of all the factors of production results
in output required to satisfy consumption
 Factors of production are important for economic
growth

23.  The are four factors of production:
1. Natural resources- resources available from nature
2. Labour- all physical and mental effort by people
3. Capital- all tools used to produce goods
4. Entrepreneurship- combine all factors of
production

24.  The factors of production receive remuneration
1. Land- rent
2. Labour-wages
3. capital- interest
4. Entrepreneurship-profit

25.  What do you understand by the term factors of
production?
 List and discuss the factors of production?
 In each factor of production give two
characteristics/features
 What are the remunerations for the factors of
production?
 Does factors of production have economic
importance? Substantiate your answer?

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