The Four Factors of Production (Edexcel IGCSE Business)

• Factors of production are the resources used to produce goods & services
  
  

Diagram: The Four Factors of Production

The four factors of product are land, capital, labour and enterprise

• The production of any good/service requires the use of a combination of all four factors of production
  • Goods are physical objects that can be touched (tangible) e.g. mobile phone
  • Services are actions or activities that one person performs for another (intangible) e.g manicure, car wash
     

An Explanation of the Four Factors of Production

Land	Capital
Non man-made natural resources available for production Some countries have a vast amount of a particular natural resource & so are able to specialise in its production E.g. Kuwait specialises in the product of oil which accounts for 95% of its exports	Capital is any man-made resource that is used to produce goods/services Examples include tools, buildings, machines & computers
Labour	Enterprise
The human input into the production process, labour involves mental or physical effort Not all labour is of the same quality It can be skilled or unskilled Some workers are more productive than others because of their education, training and experience	Enterprise involves taking risks in setting up or running a firm An entrepreneur decides on the combination of the factors of production necessary to produce goods/services with the aim of generating profit

 

Capital-intensive Processes and the Factors of Production

• In capital-intensive processes there is an emphasis on the use of machinery and technology in production
• Labour is used to complete processes that require specialist skills such as design or to oversee the operation of machinery

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

Land	Labour	Capital	Enterprise
factory site testing facilities storage facilities	car designer production director production line supervisors supply chain staff	robotic arms conveyor belt rolled steel computers seats dashboards mirrors leather	CEO & Directors

• Increased labour costs may encourage businesses to become more capital intensive over time
• High-output manufacturing businesses are well-suited to employ capital-intensive methods
• Rapid advances in technology have made more capital-intensive processes more affordable for smaller businesses
  • E.g. Developments in 3D printing has brought down the cost of computer-aided design
    
    
• Drawbacks of capital-intensive production include
  • High costs to set up and maintain machinery
  • Breakdowns can cause significant disruption to production
  • Job losses may result when equipment is introduced
  • Limited flexibility as machinery is specialised for particular tasks
    
    

Labour-intensive Processes and the Factors of Production

• In labour-intensive processes there is an emphasis on the use of workers in production
• Machinery is used to complete processes that are hazardous or continuous e.g. fermentation

Some of the Factors of Production Required in Viticulture (Winemaking)

Land	Labour	Capital	Enterprise
vineyards production facilities storage facilities	head winemaker viticulturist crop maintenance workers seasonal crop pickers bottling/packaging staff quality controller distribution drivers	tractors crop sprayers fermentation vats bottling line	cooperative members

• Labour-intensive production is more suited to the production of specialised output where quality and variation are key unique selling points or where the volume of output is small
• When labour costs are low, there is little incentive to employ more machinery in the production process
  • E.g. Labour costs are relatively low in countries such as Thailand and Vietnam where clothing is mass-produced using highly labour-intensive processes
    
    
• Drawbacks of labour-intensive production include
  • Humans cannot work for as long or as intensely as production machinery
  • Employee costs can increase with the introduction of minimum wage legislation or safety rules
  • Workers require training and may need incentives to motivate them