Factors of Production
Factors of production are the inputs/resources required for the production of goods and services, namely, land, labour, capital and entrepreneurial talent. What are the rewards of each? The land yields rent, the labour force is paid wages or salaries for their services, capital invested earns interest and the entrepreneurial talent warrants profit.
Land includes all the world’s natural resources such as, unimproved land, mineral deposits, oil and bauxite.
Labour is the physical and mental input contributed by humans to the production process. It is rewarded by wages or salaries. In economics, we frequently refer to the “division of labour” as instances in which the production process is split up and a worker always performs the same task. Since these workers always perform the same task, it leads to higher efficiency or specialization in this area. This efficiency should ultimately lead to greater productivity of labour.
Advantages of Division of Labour
- The repetitive nature of one’s task will ultimately lead to mastery in the area, and persons being more efficient. This leads to another advantage on the side of the worker, he/she can now negotiate higher pay for the specialised work.
- Cuts production time, as workers do not have to switch between tasks.
- Leads to more inventions in specific fields.
- Personnel can be hired who have specialized training in the respective areas.
- Production becomes cheaper per unit of input.
Disadvantages of Division of Labour
- Very monotonous and will lead to a loss of interest.
- Risk of unemployment, due to the limitation of being skilful in only one area.
Capital is the collection of man made inputs used in the production of other goods. These include factories and machines. These inputs are already produced, and are not used up immediately in the production process. The accumulation of capital can be referred to as investment. Generally, an increase in investment leads to an increase in output and productivity.