Factor Of Production

Factor Of Production

Factor of Production, a source of scarce services which contribute towards valued output; i.e. factors are services the demand for which would exceed supply if the price were nil. Some essential ingredients of production, such as air or gravitation, are free goods and do not enter into economic calculations; they are therefore not considered to be factors of production, As production of most goods involves a large number of stages from agriculture and mining through manufacturing to distribution, the output of one stage is often a factor of production in a later stage; e.g. wool is a product from the standpoint of sheep-farmers, but to the spinning industry it is a factor of production.

Members of industrialized economies own and control a wide range of factors of production, including their personal potentialities and tangible property. They were classified traditionally into three broad categories, land, labour and capital, which earned income called rent, wages and profits. Land consisted of all gifts of nature which yield income: unimproved agricultural and building land, mines, fisheries, etc. Labour meant people of every kind, with all their varied physical and mental powers and skills. Capitalmeant all man-made resources. In modem economic theory rent, wages and profits no longer call for separate explanation, and this broad classification has little significance for production. There is little point in lumping together bureaucrats and butcher's knife-halters as labour, distinguishing between original and man-made properties of land, or grouping together as capital such diverse factors as shops, lorries and lubricating oil. All labour is human, and all aspects of employment therefore receive special attention in labour economics. The three categories are usually retained in broad economic surveys of a country's resources (especially with regard to under-developed areas), and some theories of economic growth have been built up in terms of capital/output, capital/head and capital/acre ratios.

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this consumeraffairs.org.uk site is therefore not a final statement of economic doctrine.

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