Production is a process of transformation which leads to creation or addition of value in a good or factor. Goods and services we use are made available to us through production.
Classification of Factors of Production
The process of production is carried out by different elements which are collectively termed as factors of production. There are four factors of production land, labour, capital and Entrepreneurship.
in econmics land is defined as every thing in the universe that is not created by human beings. For example Air, Water , Sunlight, Forests, Earth, and Minerals.
The work done by people for converting these natural resources into goods meant for satisfying human wants is termed as labour. Labour means ability to work to produce goods. Both physical and mental work is termed as labour.
The resources are converted by labour into concrete goods they have an exchange value and these goods are called wealth. When a portion of wealth is used in the process to produce more wealth, it is called capital.
These factors alone cannot perform any task they have to be brought together. To produce goods the scattered factors of production need to be brought together and this task is performed by the entrepreneur.
Characteristics of Factors of production.
Substitutability means that in a given process of production one factor of production can perfectly substitute or replace another factor of production. The rate of substitution remains the same with out considering the amount of each factor being used.
The factors of production labour and capital used for production are termed as complementary to each other. One factor of production used to produce a good is complementary to another factor of production used to produce the same kind of goods for example that workers and machines are complementary factors of production as they need to be in a fixed proportion to achieve the maximum output.
If a factor of production is employed only for producing one particular commodity, then it is termed a completely specific factor of production. If a factor of production is used to produce several kinds of goods, then it is called a vresatile factor.