2281 · 1.2
The factors of production flashcards
Revision flashcards for Cambridge 2281 The factors of production (syllabus 1.2). Flip, recall, then mark a real past-paper question.
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What are the four factors of production?
Land, labour, capital, and enterprise (entrepreneurship).
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What reward does each factor earn?
Land → rent; labour → wages; capital → interest; enterprise → profit.
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What is human capital?
The skills, education, and training embodied in labour — improves productivity and wage potential.
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Why is money not counted as capital in economics?
Capital means man-made physical aids to production (machinery, tools, buildings), not financial assets.
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What is factor mobility?
The ease with which factors move between uses, occupations, or regions — affects supply elasticity.
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What role does enterprise play?
Organises other factors, takes risks, and innovates — rewarded with profit if successful.
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What is the economic definition of 'Land' as a factor of production?
All naturally occurring resources used in production. This includes physical land, minerals, forests, seas, and other 'gifts of nature'.
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What is the reward for the factor 'Capital' and why is it paid?
The reward is interest. It is the payment for the use of funds that have been invested in capital goods, representing the opportunity cost of not using those funds for another purpose (e.g., saving).
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What are the two primary functions of the 'Enterprise' factor?
1. To organise the other factors of production (land, labour, capital) into a productive unit. 2. To bear the uninsurable risks associated with the business venture.
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Define 'human capital'.
The stock of knowledge, skills, experience, and health embodied in the labour force. It represents the quality of the labour factor and can be increased through education and training.
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What is the difference between the reward for labour (wages) and the reward for enterprise (profit)?
Wages are a contractual payment to labour for their effort, representing a cost of production. Profit is a residual, non-contractual reward to the entrepreneur for risk-taking, calculated after all costs (including wages) have been paid.