Notes On Classification, Characteristics and differences between the factors of Production - ICSE Class 10 Economics
Production
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.
  • Land
  • Labour
  • Capital
  • Entrepreneur

Land
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.

Labour
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.

Capital
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.

Entrepreneur
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
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.


Complementarity
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.

Specificity
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.

Summary

Production
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.
  • Land
  • Labour
  • Capital
  • Entrepreneur

Land
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.

Labour
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.

Capital
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.

Entrepreneur
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
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.


Complementarity
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.

Specificity
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.
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