Factors of Production

There are four factors of production: Entrepreneurship Entrepreneurship Capital Goods Capital Goods Natural Resources Natural Resources Human Capital Human Capital So, what does that mean?

It means that in order to go into the business of making things, you need these four basic ingredients. We call them factors of production. Stay with me, you’ll get it!

I. Entrepreneurship This is the guy or gal who says: “Wow! I know how to build a better mousetrap! I’ll open a factory and start making better mousetraps. I’m so sure of my success, that I will invest my money into the project and even take out a loan if I need to.” “Wow! I know how to build a better mousetrap! I’ll open a factory and start making better mousetraps. I’m so sure of my success, that I will invest my money into the project and even take out a loan if I need to.”

Of course, it doesn’t have to be a new mousetrap. Maybe you know how to build a better burger, cure the common cold, or grow purple pumpkins. Being an entrepreneur just means taking an idea and being willing to invest your time, money and effort into making a success of it.

II. Capital Goods Ok, you have an idea for a better mousetrap and now you want to build a factory. What are you going to need to do this? You and your seatmate see if you can think of at least 10 things, or capital goods, you will need to start your mousetrap factory.

Capital Goods may include: Machinery Machinery Tools Tools Factory building Factory building Equipment Equipment Transportation vehicles Transportation vehicles All the THINGS you need to start your mousetrap factory are called Capital Goods. All the THINGS you need to start your mousetrap factory are called Capital Goods.

And don’t forget the most important capital good you will need.... MONEY!!!!! And don’t forget the most important capital good you will need.... MONEY!!!!!

Review You are an entrepreneur and want to start a business building better mouse traps. You are an entrepreneur and want to start a business building better mouse traps. You have capital goods: all the equipment, technology and money that you need to get started. You have capital goods: all the equipment, technology and money that you need to get started. Will you need any natural resources for your Will you need any natural resources for your business? That is any thing from good ole Mother Nature.

III. Natural Resources Natural resources are supplied by nature (Duh!) and have been used as a source of wealth as long as man has lived on earth. Cities and towns can usually trace their location back to a valuable natural resource that first led people to settle there. For instance, the city of Salzburg, Austria in Europe takes its name from the word “salt” in recognition of the major role this natural resource played in the formation of the city. Natural resources are supplied by nature (Duh!) and have been used as a source of wealth as long as man has lived on earth. Cities and towns can usually trace their location back to a valuable natural resource that first led people to settle there. For instance, the city of Salzburg, Austria in Europe takes its name from the word “salt” in recognition of the major role this natural resource played in the formation of the city.

Here’s what you have: Entrepreneur: the guy with the idea & motivation Entrepreneur: the guy with the idea & motivation Capital Goods: the money and equipment you need to get started. Capital Goods: the money and equipment you need to get started. Natural Resources: a good supply of wood, metal, water etc. Natural Resources: a good supply of wood, metal, water etc. Need anything else?

IV. Human Capital You have all the ideas, money, equipment & natural resources, now you need PEOPLE! You need them to work and you need their brain power to work for you. This is called, human capital, or labor. You have all the ideas, money, equipment & natural resources, now you need PEOPLE! You need them to work and you need their brain power to work for you. This is called, human capital, or labor.

Human capital, or labor, is an important factor of production. Without workers, you can’t run your business. But human capital is more that just getting people to work. It also includes training & education and even taking care of their health. The more a business invests in their employees, the more productive they are at work. Workers who are valued for their experience and abilities make a positive impact. Human capital, or labor, is an important factor of production. Without workers, you can’t run your business. But human capital is more that just getting people to work. It also includes training & education and even taking care of their health. The more a business invests in their employees, the more productive they are at work. Workers who are valued for their experience and abilities make a positive impact.

Final Check Do you have everything you need for your mousetrap factory? Entrepreneur: someone with the idea and willing to invest their time & money Entrepreneur: someone with the idea and willing to invest their time & money Capital Goods: equipment, money, technology Capital Goods: equipment, money, technology Natural Resources: water, coal, timber, etc. Natural Resources: water, coal, timber, etc. Human Resources: people to work, plan and give creative input Human Resources: people to work, plan and give creative input