The Factors & Their Rewards | Economics for GCSE/IGCSE - Year 11 PDF Download

Factors of Production

• Factors of production refer to the essential resources necessary for the production of goods and services, including land, labor, capital, and enterprise.

Importance of Factors in Production

• Each factor plays a crucial role in the production process. For example, without labor, the production line would halt, leading to a shortage of goods.
• A balance of all factors is necessary for efficient production. If any factor is lacking, it can impact the overall output and quality of goods and services.

Examples of Goods and Services

• Goods: These are tangible products that can be seen and touched, like smartphones and cars.
• Services: Intangible actions provided by individuals for others, such as hairdressing services or car wash facilities.

The Four Factors of Production

Some of the Factors of Production Required to Produce a Motor Car

Rewards for Factors of Production

• In a market economic system, households or firms own the factors of production and provide them to businesses for production.
• Households receive factor income as a reward for selling their factors of production.
• The factor income components are:
  • Income for land is known as rent.
  • Income for labor is referred to as wages.
  • Income for capital is termed as interest.
  • Income for entrepreneurship is identified as profit.