Land refers to all natural resources and means the materials and forces of nature that are useful to humanity. It has certain peculiarities such as being a gift of nature, fixed in quantity, permanent, and varying in fertility. Rent is the payment for the use of land alone and is a surplus beyond what is needed to retain the land's current use. Labor means any mental or physical work done for pay. Its peculiarities include being inseparable from the laborer and having weak bargaining power. Capital refers to the manufactured means of production and plays a vital role in development by raising productivity and creating employment. The entrepreneur coordinates the factors of production by organizing, supervising work, bearing risk and uncertainty, and innovating.

1. Land & Rent
Labor & wages.
Capital & interest.
Entrepreneur ship & profit

2. • The term land has been given a
special meaning in Economics.
• It does not mean soil as in the
ordinary speech, but it is used in a
much wider sense.

3. • In the words of Marshall, land means “ the
materials and the forces which nature
gives freely for man’s aid, in land and
water, in air and light and heat.”
• land stands for all natural resources which
yield an income or which have exchange
value.
• It represents those natural resources
which are useful and scarce, actually or

4. • Peculiarities of land:
• In contrast to the other factors of
production, land presents certain well-
marked peculiarities:
1. Land is nature’s gift to man.
2. Land is fixed in quantity. It is said that
land has no supply price. i.e., price of land
prevailing in the market cannot affect its
supply; the price may be high or low, its
supply remains the same.

5. • Peculiarities of land:
4. Land is permanent. There are inherent
properties of the land which Ricardo
called, “original and indestructible.”
5. Land lacks mobility in the geographical
sense.
6. Finally, land provides infinite variation of
degrees of fertility and situation so that no
two pieces of land are exactly alike.
These are few peculiarities of land and they

6. Meaning of rent:
In ordinary speech the term ‘rent’ is used in
a vide sense to mean a hiring charge, e.g..
rent of a house, a Tonga or a machines. But,
in Economics, rent, or economic rent as it is
called, is used in a special sense. It refers to
that part of the payment by a tenant which is
made only for the use of land, i.e. free gift of
nature.

7. Economic rent and contract rent;
The payment that an agriculturist tenant
actually makes to the landlord is not
necessarily equal to this economic rent. A
part of this payment may consist of interest
on capital invested in the land by the owner
in the form of buildings, fences, drainage
wells, etc. that part of the payment which is
made for the use of land only is economic
rent and the total payment made by a tenant
to the landlord is called contract rent.

8. Rent as surplus:
• In economics, the term ‘rent’ is being increasingly used in
the sense of a surplus, i.e., what a factor of production
earns over and above what is essential to maintain its
supplies in its present occupation.
• It can be easily understood that a rent in this sense can
arise only when the supply of a factor of production is
less than perfectly elastic, and this is the case with most
of the factors.

9. Rent as surplus:
• But when the supply of a factor is not perfectly responsive to
changes in the reward of the factor, it can continue to earn
more than what is necessary to call forth its supplies without
any fear of new units of factors coming in to deprive it of extra
reward.
• the supply of land in general, though not for a particular use, is
absolutely inelastic, and as such, its supply is independent
what it earns.
• That is a higher rent cannot attract more of it and a lower rent
cannot drive it out.
• That is why it is said that land has no supply price.

10. Rent and transfer earnings:
• The transfer earnings represent the amount which a
factor can earn in its next best paid alternative use.
• Suppose, a piece of land yields in its present use Rs.500
a year and suppose further that if it is transferred to its
next best use, it will yield Rs.400.
• In its present use, it yields Rs.100 more than its next best
use. This sum of Rs.100 is a sort of surplus that the land
is yielding in its present use. This surplus is called rent.

11. Rent and transfer earnings:
• We can look at it in another way. A payment of Rs.400 is
essential in order to retain this piece of land in its present
use, but actually it yields Rs.500, i.e., Rs.100 extra.
• The price which is necessary to retain a given unit of
factor in a certain industry may be called its transfer
earning or transfer price.
• If, however, the factor is earning over and above its
transfer earnings of transfer price, the surplus or excess
earnings is economic rent.

12. In the ordinary speech, the term ‘labor’
means a mass of unskilled labor.
But in economics it is used in a wider sense.
• Any work, whether manual or mental, which is
undertaken for a monetary consideration, is called ‘labor’
in Economics.
• Any work done for the sake of pleasure or love does not
fall under labor in the economic sense.
In Marshall’s words,
“Any exertion of mind or body undergone partly or wholly
worth a view of some good other than the pleasure derived
directly from the work is called labor”.

13. Peculiarities of labor:
1. Labor is inseparable from the laborer
himself.
2. Labor has to sell his labor in person
3. Labor does not last. It is perishable. As
Erich Roll remarks, “he has no reserve
price.” The laborer has, therefore, to
accept the wage offered to him.

14. Peculiarities of labor:
4. Labor has a very weak bargaining power.
5. Changes in the price of labor react rather
curiously on its supply.
6. There can be no rapid adjustment of the
supply of labor to demand for it, because
supply cannot be increased quickly, nor
can it be reduced.

15. • Racial Qualities
• Climate Factors
• Education
• Organization
• Personal Qualities
• Working Hours
• Industrial
Organization and
Equipment
• Factory
Environments
• Fair and Prompt
Payment
• Social and Political
Factors
Factors determining efficiency of labor:

16. How do markets allocate national
income among the many factors of
production?

17. • Capital refers to that part of a man’s wealth
which is used in producing further wealth or
which yields an income.
• But capital is not a primary or original factor of
production.
• It is a ‘produced means of production’.
• The term ‘capital’ is generally used for capital
goods, e.g., plant and machinery, tools and
accessories, stocks of raw materials, goods in
process and fuel.
Meaning:

18. Land is not regarded as capital because:
a) land is a free gift of nature but capital is man-
made or is a ‘produced’ agent of production;
b) capital is perishable, whereas land is
indestructible and permanent;
c) capital is mobile but land has not mobility;
d) the amount of capital can be increased but the
quantity of land is fixed and limited; and
e) income from capital is uniform whereas rent of
land varies;
Is land capital?

19. Capital plays a vital role in the modern productive
system. Production without capital is hard for us
even to imagine.
Nature cannot furnish goods and materials to men
unless he has the tools and machines for mining,
farming, fishing etc.
Because of its strategic role in raising productivity
capital occupies a central position in the process of
economic development.
In fact, capital formation is the very core of
economic development.
Importance of capital

20. Another important role of capital formation is the
creation of employment opportunities in the
country.
Capital formation creates employment at two
stages.
• First, when the capital is produced, some
workers has to be employed to make capital
goods like machinery, factories, dams, irrigation
works, etc.
• secondly, more men have to be employed when
capital has to be used for producing further
Importance of capital

21. Entrepreneurs’ role:
• The role that the entrepreneur plays consists in
coordinating and correlating the other factors of
production.
• He starts the work, organizes and supervises it.
• He undertakes to remunerate all the factors of
production: to pay rent to the land lord, interest
on the borrowed capital, and wages to labor, and
pays them in advance of the sale of goods.
The fourth factor of production is enterprise which is
supplied by the entrepreneur

22. Functions of entrepreneur:
The entrepreneurs’’ functions may be summarized
as:
i. Initiating a business enterprise by mobilizing
and harnessing the necessary productive
resources.
ii. Taking the final responsibility of the business
enterprise- risk-taking and uncertainty bearing.
iii. The entrepreneur as an innovator.