1. Factors of Production
 Identify the four factors of production - land, labor,
capital, and entrepreneurship. Explain the role of
each in the production cycle
 Demonstrate understanding of key concepts as it
relates to the factors of production.
 Apply knowledge of the four factors by creating a
visual representation of a production cycle.
Objectives

2. • List on paper everything that went into
making the candy bar from the time
someone had the idea for the candy until
the consumer purchased the candy off the
store shelf.

3. Factors of Production
Definition: The resources used to
produce goods and services.

4. HOW ARE GOODS PRODUCED?
Factors of production are grouped
into four categories:
Land (Natural Resources)
Labor (Human Resources)
Capital
Entrepreneurship

6. HOW ARE GOODS PRODUCED?
What raw materials are needed to produce
your product?
The “gifts of nature” that we use to produce goods and
services. All the things we call natural resources.
Comes from the air, water, or the earth
Land, minerals, water
Renewable
Water, air growing things
Non-Renewable
Coal, oil
LAND

7. Factor 1: Natural Resources
 Nature supplies raw materials necessary to make things
 These raw materials are called Natural Resources
–Example: Chicken
noodle soup contains
chicken meat, spices,
water, and vegetables, all
of which came from the
nature

8. HOW/WHERE ARE GOODS PRODUCED?

9. HOW ARE GOODS PRODUCED?
 What will your employees have to do to create your
product?
 What work will need to be done to turn your raw
material into your finished product
 Work time and work effort that people
devote to producing goods and services
People’s efforts, labor
Effort can be physical or mental
LABOR

10. Factor 2: Human Labor
 Human effort used to produce goods and services is called labor
 Labor can be physical or mental
 Mental – product of the human brain, rather than the body.
 Physical – work done by individual (hands on)
•Example: to the soup, farmers raise the
animals and crops, a truck driver drives
them to a factory, and workers operate
machinery to mix and can it
(physical labor)
•Someone has to design the machines,
and think of a recipe for the soup
(mental labor)

11. HOW ARE GOODS PRODUCED?

12. HOW ARE GOODS PRODUCED?
What equipment and people will you need to create
your product
 Physical capital: What tools, machines and factories will you need
to create your product
 Financial capital: funds the firm use to buy physical capital
 Human capital: What knowledge, skills, education and experience
will your employees need to have in order to produce your product
(for example: a seamstress , a chemist, a computer technician )
 Goods made by people and used to produce other goods and services
 Tools, instruments, machines, buildings, and other constructions that have been
produced in the past and that businesses now use to produce goods and services.
CAPITAL

13. Factor 3: Capital Resources
Producing goods and services requires
tools and equipment
The buildings, machines, supplies, etc.
used to produce are called capital
resources, or capital goods
•Examples: the truck used
to drive to the factory, the
machines used to can the
soup, and the factory
building itself

14. HOW ARE GOODS PRODUCED?
 The human resource that organized and combines
labor, land, capital.
• The quantity and quality of entrepreneurship is
hard to describe and measure.
• But we can easily recognize brilliant
entrepreneurs by their enormous financial
success.
 Sam Walton (Wal-Mart), Bill Gates (Microsoft), and
Michael Dell (Dell Computers) are examples of
outstanding entrepreneur's.
ENTREPRENEURSHIP

15. Influences on Entrepreneurs
Decision Making
• Scarcity- Nearly all resources are scare,
meaning there is a limited supply available
to meet unlimited wants
The more scarce a resource, the more
expensive it is.
Inverse Economic Relationship – when
fruit is out of season, supply is more
scarce –
• This causes the price to increase
because it is more valuable

16. Opportunity Cost – resources
are scare, the choice to use a
resource in one way means not
using it in another.
Use a field to grow corn
means the field cannot be
used to grow soy beans
Influences on Entrepreneurs
Decision Making

17.  Productivity- is a measure of the amount of output
produced by a given amount of inputs. It reflects how
efficiently resources are being used.
 This is also referred to as measuring the efficient use of the
factors of production.
For example, the productivity of a farmer
(labor) increases with the use of a tractor
(capital).
Investing in human capital is one way to
increase productivity
Influences on Entrepreneurs
Decision Making

18. Influences on Entrepreneurs
Decision Making
 To realize a profit, produce good/service at
a cost lower than the market price for the
good or service.
 Profit is the money left over from selling a
good or service after the cost of buying
productive resources have been paid.
 Minimize the use of scarce resource in
production
 Maximize the productivity of the factors used in
production to keep cost as low as possible.

19. Entrepreneurship:
The 4th Factor
 Making the other 3 factors of production into something useful often
takes creativity and some risk
 Entrepreneurship is the factor of production that ties the others
together
•Examples: Someone has
to decide what to name the
soup, where to sell it, and
how much to charge

20. In order to study economic relationships, we need a sensible way to
categorize the various things in our economic world. Take a look at
this list of things that have value. Which of them would you place in
the category of LABOR? Which are LAND? Which are CAPITAL? Are
there some that don't fit in any of the three?
Some Things that Have Value:
Food in a Restaurant
Oil in the Ground
Your Mom's old House, which
you Rent to Tenants
Fish in the Ocean
Teaching
A Building Site
Food on your table
A $100 Bill
A House You Live in
A Truck
A Broadcast Frequency
Ditch Digging
Computer Programming
A Certificate for 100
Shares of Microsoft
Playing Music in the
Subway
Factors of Production

21. Did your chart come out like this?
LAND
Oil in the Ground
Fish in the Ocean
A Building Site
A Broadcast
Frequency
LABOR
Teaching
Ditch Digging
Computer
Programming
Playing Music in the
Subway
WEALTH FOR CONSUMPTION
Food on your table
A House You Live in
WEALTH USED IN PRODUCTION
Food in a Restaurant
Your Mom's old House, which you
Rent to Tenants
A Truck
CLAIMS ON WEALTH
A $100 Bill
A Certificate for 100 Shares of
Microsoft

22. 1.natural resources
2.human capital
3.scarcity
4.physical capital
5.opportunity cost
6.tradeoff
7.entrepreneurship
8.profit
9.financial capital
10.productivity
The human resource that combines land,
labor, capital
What tools, machines, and factories will be
needed to create your product?
Funds to buy physical capital
Knowledge, skills, education your
employees need
Raw materials necessary to make products
Measure of the amount of output
The alternative you face if you decide to
do one thing rather than another
Using a field to grow cotton means the
field cannot be used to grow soy beans.
Limited supply
Money left over from selling a good or
service after the cost has been paid.