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You know there are two major players in an economy, One is producer and the other is Buyer. Today we will discuss what kind of input resources a producer needs to manufacture some goods or services?
In this video we are going to discuss four factors of productions.
To explain this concept lets put ourselves in the shoes of a businessman, If you are going to run a business what kind of resources do you need.
For instance if I am going to run a grocery store, I need a shop, to place food items and other kitchen stuff.
I need to hire few helpers, who will serve the customers, need money to buy food items, to pay shop rent, to pay utility bills, and to pay wages.
What else do I need? My personal supervision , the last thing I need to have is my own supervision over all the activities of grocery store, I have to perform different roles like collection of cash, maintaining stock of food items, pay the dues , manage accounts etc etc.
In a nutshell, I have to have four factors of production: Land , Labour ,capital and enterprise.
In the prior discuss example Shop would be considered as a land, the helpers would perform labour role, the capital would fulfill all the financial needs, and the skills required to run that shop would be considered as enterprise
In broader perspective
Land consists the piece of land on which production unit or firm is located as well as the resources contained within the land, such as metals, minerals, and oil. The environment itself– the air, sea, rivers, and forests – is also a scarce resource, and would be considerd as land. The reward of land is The “Rent”
Labour includes the value of human skill and physical effort that is available to an economy, all the workers work in factories , patrol pumps, grocery stores, teachers teach in schools, doctors work in hospitals are included in human capital or labour. The reward of human capital is “Wage”
Capital includes all man-made assets which have been created to help produce goods and services, such as machinery and equipment. Capital also includes stocks of raw materials waiting to be used before they become goods and serves.it also includes the loan taken from any financial institution to start or to expand the business.
The reward of Capital is “Interest”
Enterprise
Enterprise is supplied by entrepreneurs, who have two crucial roles:
Combining the other factors in such a way that goods and services can be produced in the most efficient way.
Taking risks associated with the potential loss of assets or with making commercial losses.
The reward of Enterprise would be “Profits”
Sectors of Economy.
Production is undertaken by firms, also known as enterprises, or businesses. There are three main stages of production, corresponding to three economic sectors:
• Primary Sector, which involves the extraction of resources from the earth, such as agriculture, fishing, and mining. Land and natural resources are the main resources used in primary production.
• Secondary Sector involves the manufacture of semi-finished and finished consumer goods, such as computers, motor vehicles, and clothing. Labour and capital are the main resources used in the secondary sector.
• Tertiary Sector involves the distribution of products and the creation of services, such as road haulage, financial services, and healthcare. Human capital is usually the most essential resource used in tertiary production. The tertiary sector is sometimes sub-divided into tertiary, quaternary and quinary sectors. The quarternary sector of an economy includes the infrastructure of information technology and knowledge that enables an economy to produce successfully.
The quinary sector is defined at the
not-for-profit aspect of the economic, political and social infrastructure which supports economic activitiy, including universities, charities and government activity. Sophisticated quaternary and quinary sectors are commonly viewed as essential to economic development in a globalised economy.
