Production
The factors of production are whatever is needed to produce the goods and services, aside from the raw materials utilized. In other words, the factors of production are whatever is needed for production but does not itself become part of the product. Traditionally those factors have been land, or natural resources; labor; and capital goods, such as man-made tools and equipment. More recently a fourth factor has been added, and that is entrepreneurship and “human capital,” meaning education and skills of labor.
The lack or scarcities of the factors of production are what pose mankind’s economic problem. This lack forces society to choose among competing goals. It is important to have a good understanding of this concept in order to understand the effects economic policy has on the economic system.
