The factors of production and their rewards

Overview

Four factors of production, land as a factor of production and labour as a factor of production.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   Name the four factors of production.

   Model answer

   The four factors of production are land, labour, capital and enterprise. Every good or service is produced by combining these inputs.

2. 2

   Define land as a factor of production.

   Model answer

   Land covers all natural resources used in production, including soil, minerals, water and forests. The reward paid to land is rent.

3. 3

   Define labour as a factor of production.

   Model answer

   Labour is the human effort, both physical and mental, used in production. The reward paid to labour is wages.

4. 4

   Define capital as a factor of production.

   Model answer

   Capital consists of manufactured goods used to produce other goods, such as machinery, factories and vehicles. The reward paid to capital is interest.

5. 5

   Define enterprise as a factor of production.

   Model answer

   Enterprise is the willingness to organise the other factors and bear the risk of production. The reward paid to enterprise is profit.

6. 6

   What is human capital?

   Model answer

   Human capital is the stock of skills, knowledge and experience embodied in the workforce. Education and training raise human capital and with it labour productivity.

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