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Factors of Production

Factors of production are the inputs of production for finished goods and outputs. Inputs and outputs are dependent on the other and the relationship between the two is called the production function. The classical or primary factors of production are land, labour, and capital. Simply put, inputs of production (or factors of production) are the commodities or services used to produce a good or service. The secondary factors of production are inputs such as material and energy because they are what are acquired from land, labour, or capital.

Labour is defined as the human effort that is applied to production¹. Labour is obtained through what the worker brings to the production process. A person’s skills acquired through education, experience, particular training that are used in production are referred to as human capital. If you are a student in university or college, you are gaining human capital¹. Labour can be increased in an economy by increasing the amount of workers or number of work hours per week, or by increasing the human capital a worker possesses¹.

Capital can be defined as a resource that has been produced or used to produce other goods and services. It is important to remember that money is not considered capital, but is a form of financial capital. Resources are what is found in nature and used in the production of goods and services.

Technology and entrepreneurs also play an important role in production because entrepreneurs use technology in different ways to change how factors of production are used.



1. Ragan, Chrisopher. Macroeconomics/Christopher T.S. Ragan, Richard G. Lipsey. – 13th Canadian ed. 

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