Factors of Production: Definition, Markets, Various and Types
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| Source: TheBalanceMoney.com |
Factors of Production are everything (goods or services) that can be used to create or add value to goods and services. The simple definition is everything that is needed so that production activities can run smoothly.
At school, surely friends need books and stationery to help friends study. Have friends ever found out what is needed to make a book? Of course books are made from raw materials (natural resources), which are processed by workers (labor), in a factory building and using certain machines ( capital ), where ideas, marketing, planning and so on are carried out by the owner (entrepreneurship). An item that we have is actually created because of a combination of these factors, which we call the factor of production.
Market Factors of Production
In contrast to the production market, the supply of factors of production comes from consumer households and demand comes from producer households. Remuneration in the form of rent, wages, interest income and profits.
Various and Types Factors of Production
In general, it can be divided into four types, namely:
1. Natural resources
What is meant by natural resources are all factors of production originating from natural resources that can be used to meet human needs. Natural resources include:
- Air, earth, water, sunlight
- Animals, plants
- Minerals and others
2. Labor
We can say that labor is a factor of production that plays a role in managing other resources. We can further divide the workforce based on several groups, namely:
a. Based on its nature:
- Physical labor: is labor that uses more energy at work. For example: farmers, pedicab drivers, sweepers
- Spiritual labor: is labor that uses more of the ability of the mind in work. For example: doctor, teacher, banker
b. Based on the quality and ability:
- Educated workforce: are workers who require certain education in order to be able to do their job.
- For example: lecturer, doctor
- Skilled workforce: is a workforce that requires certain skills so that generally requires certain training to be able to do the job. Example: tailor, salon captain, driver
- Uneducated and unskilled workforce: are workers who do not require education or special skills to be able to do their jobs. Examples: scavengers, newsboys, hawkers
3. Capital
Capital is a production factor that has a role in accelerating and helping the smooth production process. Capital can also be divided into several groups:
a. Based on its nature:
- Fixed capital: is capital that has long-lasting properties so that it can be used many times in the long term. Examples: machines, buildings, vehicles
- Current capital: is capital that has disposable properties. Example: paper, fuel.
b. Based on the source:
- Own capital: is capital that comes from the owner and the company itself
- Foreign capital: is capital originating from loans to banks or other parties
- Individual capital: is capital sourced and owned by individuals and the results can be categorized as income for the owner of the capital. Example: savings interest, car rental, building rental
- Common capital: is a capital production factor that comes from the government and is used for the common good. Example: market, port
d. Based on the shape:
- Concrete capital: is capital whose physical form can be seen during the production process. Example: machine, raw materials
- Abstract capital: is capital that has no physical form but is valuable and has uses for the company. For example: patents, trademarks, good names
4. Entrepreneurship
Is the expertise and skills possessed by a person in coordinating the factors of production in such a way as to obtain the expected results. The main things that must be done by an entrepreneur are summarized in the process as follows:
- Planning
- Organizing
- mobilization
- Supervision
