Explain the relative importance of the factors of production. Or, describe the factors of production.

Production means transformation of inputs into outputs. The inputs (productive resources) are what a firm buys and outputs (goods and services produced) what it sells. Productive resources required to produce a given product are called factor of production. The factors of production have been classified as:

 

1. Land:

Land means the material and the forces which nature gives freely for man's aid like land, water, air, light and heat. It yields an income or has exchange value. It is useful and scarce, actually or potentially.

2. Labor:

Any work which undertaken for a monetary consideration is called labor. In Marshall's words, "Any exertion of mind or body undergone partly or wholly with a view to some good other than the pleasure derived directly from the work is called labor."

3. Capital:

Capital refers to that part of a man's wealth which is used in producing further wealth or which yields an income. The term capital is generally used for capital goods like plant and machinery, stock of raw materials etc. It is a "produced means of production."

4. Organization:

The role that the entrepreneur plays consists in coordinating and correlating the factors of production. He undertakes to remunerate all the factors of production like to pay rent to the landlord, interest on the borrowed capital and wages to labor. Finally, he takes the final responsibility of the business.

At last, production means inputs becomes outputs that are goods or services in the attempt to make an economic profit.