Factors of Production
Humans can survive only by consuming goods and services. But in order to consume these, they need to be produced. The production of goods and services is essential for human survival. Production is the process of providing goods and services to satisfy various human needs. The result of production is a product. The labor, natural resources, and man-made objects used to produce a thing are called factors of production. Factors of production are divided into four categories. Land (natural resources), Labor (physical and mental human labor), Capital (man-made objects), and Entrepreneurship (coordination of other factors of production).
Land
All natural resources used for the production of goods are included in the term land. All natural resources on the earth's surface, in the earth's atmosphere and in the earth's interior are considered to be the factor of production, land. Soil, water, forests, air, coal, etc. are natural resources that are included in the earth as a factor of production. Rent is the remuneration for land as a factor of production.
Labor
Labor is the use of physical, mental and intellectual labor by workers to produce goods and services. Wages/salaries are the remuneration for the labor provided by the worker.
Capital
Capital is man-made objects used for production that can be seen and touched. Capital includes machines, vehicles, computers, etc. that can be used in production activities. Interest is the remuneration for capital.
Entrepreneurship
Entrepreneurship is the combination of the factors of production, land, labor and capital. The organizer/entrepreneur is the person who organizes. Profit is the reward for the Entrepreneurship.
UPSC/PSC Questions
1. Things that can be used to fulfill human needs and can be seen and touched are known as - goods (e.g. pen, book)
2. Things that cannot be seen or touched like goods but can be experienced - services (teaching, healthcare)
3. The process of providing goods and services to satisfy various human needs - production
4. What is obtained as a result of production - product
5. The process by which factors of production are transformed into products - production
6. The labor, natural resources, and man-made objects used to produce a thing are called - factors of production
7. Factors that help in production - land, labor, capital, and entrepreneurship
8. The factor of production that includes all the natural materials found on the earth's surface, in the earth's atmosphere, and in the earth's subsoil - land
9. The remuneration received for land as a factor of production - rent
10. The use of physical, mental and intellectual labor by workers to produce goods and services is called - Labor
11. The remuneration for the labor provided by the worker is called - Wages (salary)
12. Man-made factor of production - Capital
13. The visible and tangible man-made objects used in production are called - Physical capital (e.g. machines, factories, computers)
14. The physical capital that can be used continuously in production activities is called - Fixed capital (power plant, lorry, rail tracks)
15. The daily expenses such as raw materials, stock of products, wages to be paid to workers are called - Working capital
16. Money for purchasing capital goods - Money capital
17. The remuneration of capital is called - Interest
18. By establishing new factories, machines, power plants and roads for higher production, the increase in physical capital is called - Capital formation
19. Example of Capital-intensive production - mechanized farming
20. Example of Labor-intensive production - traditional farming
21. Money is what individuals, institutions and the government set aside for future needs without spending a part of their income - Savings
22. The combination of factors of production such as land, labor and capital is known as - Entrepreneurship
23. The person who organizes is known as - Organizer/entrepreneur
24. Reward for the Entrepreneurship - Profit
25. The production of products in the economic activity sector - Production unit
26. The use of the products produced - Household unit
27. The provision of factors of production such as land, labor, capital and entrepreneurship to production units - Household unit
28. Rent, wages, interest, and profit paid to production units as compensation for factors of production - Household unit
29. Provision of goods and services required by household units - Production unit
30. Provision of goods and services paid by household units as compensation for production units - Price (paid in money)
31. Inactive factors of production - land and capital
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