What are factors of production

Every product around you (your clothes, shoes, school bag, furniture, phone) went through a production process before it reached you.

That process uses resources, or inputs. The resources and inputs used in producing goods and services are called the factors of production.

Businesses, or enterprises (a firm, a shop, a factory), combine these inputs to create goods and services. And in doing so they also create jobs for people.

The chapter uses one running example. Ratna runs a small restaurant, Pause Point, on the edge of the city, popular with highway travellers, now with a team of seven.

Look at what she had to arrange when she started five years ago: a place, money for rent and equipment, staff, ingredients, and a plan. Those are the factors of production, in the order a real person meets them.

The chapter's survey of one neighbourhood shows the same pattern everywhere. A vegetable seller needs fresh produce, baskets, a weighing scale and a cart. A mobile repair shop needs tools, spare parts, and "knowledge and skills to handle mobile components".

Notice that last one. An input need not be a physical thing at all.

In economics the factors are put into four groups: land, labour, capital and entrepreneurship. (One way to remember them: CELL, for Capital, Entrepreneurship, Land, Labour.) Technology sits alongside them as a facilitator (a helper): it lets enterprises produce more with the same or fewer inputs.