Factors of Production in Economics: Definition, Importance & Examples

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  • 0:00 What Are Factors of…
  • 0:23 Importance
  • 0:48 Types of Factors and Examples
  • 2:19 Lesson Summary
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Lesson Transcript
Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Expert Contributor
Joseph Shinn

Joe has a PhD in Economics from Temple University and has been teaching college-level courses for 10 years.

In this lesson, you'll learn about factors of production in economics, including their definition, their importance, and some examples. You'll also have a chance to take a short quiz.

What Are Factors of Production?

Factors of production are the resources used by a company to produce goods and services. The universally recognized factors of production include land, labor, and capital. Some scholars include enterprise - entrepreneurship - as a fourth factor while many argue that it should fall under labor.


As the Greek philosopher Parmenides said, 'Nothing comes from nothing.' Factors of production are the resources that allow us to create finished products and perform services. You can't create a product out of nothing. You can't even perform a service without labor, which is also a factor of production. A modern economy, along with our modern society, cannot exist without factors of production, which makes them pretty darn important.

Types of Factors and Examples

Let's take a look at each of the factors along with some examples.

Land is often an essential factor of production in many economic activities. In fact, if you really think about it, it's impossible to do anything without land - where else are you going to place your factory, grow your crops, mine your minerals, drill for oil, or even stand to provide a service to a customer? Keep in mind that land includes not just the dirt, but also the natural resources on it or in it, such as trees, water, precious metals, minerals, and fossil fuels.

Labor is also essential. Products don't create themselves, and you need people to provide services and people to manage business activities. You can basically think of labor as the exertion of any type of human effort in producing something or providing a service. Some labor is relatively unskilled, such as digging ditches, while other labor requires a high degree of education and skill, such as mapping the human genome.

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Additional Activities

Additional Questions

  1. What are the factors of production? When answering this question, also discuss what factors of production are used for?
  2. In terms of factors of production, what is labor?
  3. In terms of factors of production, what is land?
  4. In terms of factors of production, what is capital?
  5. What is entrepreneurship?
  6. Entrepeneurship is sometimes considered a factor of production. Other times, it is considered part of labor. List and describe three reasons why you believe this should and should not be considered a factor of production.

Case Study

You decide that you want to start a pizza shop. Early in the planning process, you want to look at what will be needed to make and sell your pizzas once you open. For this research, answer the following questions:

  • What labor will you need in order to produce your pizzas? Specifically, what will be the role of this labor (ie what tasks will they be completing)?
  • What land (if any) will you need in order to make your pizzas? If you do not think you will need land, explain why you think this.
  • What capital will you need to make your pizza? HINT: Do not just think about what you will need to make the pizza. Also consider what you will need to serve and sell your pizza.

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