Production:

• The activity of converting raw materials and resources into final goods which satisfy human wants is called production.
• By converting the nature of resources, their utility increases. In this sense, production can also be defined as a process which increases utility of resources.

There are four factors of production. They are:

1. Land,
2. Labour,
3. Capital and
4. Entrepreneur.

1. Land:

According to Marshall, all natural assets which help in production or in economic activities constitute land. As per this definition, climate, water resources, fertility, mineral resources, etc. all these natural assets help in production and hence constitute land.

Characteristics of land:

• Land is not manmade. It is a gift of nature.
• The total supply of land is fixed.
• Land is immobile.
• Each type of land has different fertility, experiences different climatic conditions, etc.
• The remuneration of land as a factor of production is called ‘rent’.

2. Labour:

The physical or intellectual work done by humans under supervision by some authority in order to earn returns is called labour.

Characteristics of labour:

• Labour and labourer cannot be separated from each other.
• Labour cannot be stored. So, we can say that labour i.e. effort done by a labourer is perishable.
• The mobility of labour is influenced by social and economic reasons.
• The efficiency of every labourer is different. This means that the capacity of every labourer to perform labour is different.
• The supply of labour depends upon population.
• The remuneration for labour is called ‘wages’.

3. Capital:

• All manmade goods which help in production are called capital. Capital differs from land and labour as it is a ‘produced’ factor of production. In other words, it is a manmade factor of production.
• For example, a tractor is a ‘produced’ factor of production which further helps in the production of agricultural goods.

Characteristics of capital:

• (1) Capital is a manmade factor of production.
• (2) It is the most mobile of all factors of production.
• (3) The increasing demand for capital in present times owing to increasing capital intensive methods of production has resulted in increasing scarcity of this factor.
• . (4) The remuneration of capital is called ‘interest’.

4. Entrepreneur:

• Entrepreneur is the factor which brings together or say coordinates all other
  factors of production for the production process. Without entrepreneur, economic activity is not possible.
• Entrepreneur is the person who establishes the enterprise and takes the risk of coordinating economic activities.
• This factor of production i.e. the entrepreneur does not get fixed return but tries to generate income by running the economic activity successfully. He/ she may even incur a loss if the activity does not function well.

Characteristics of entrepreneur:

• This factor decides the activity that will take place.
• This factor is known as the risk taking factor.
• It possesses the quality of co-ordination. In other words, ‘entrepreneurship’ is a quality.
• The remuneration of this factor is called profit.