The factors of production, together, make it possible to satisfy human needs.
Factor is a term whose etymological origin is found in the Latin language. Among its various uses, in this case we are interested in its meaning as the resource, element or reason that acts or works in conjunction with others .
The idea of production , coming from the Latin word productio , can refer to all the products of an industry or a region . It also allows us to refer to the process that leads to the creation or manufacture of something and the object produced .
What are the factors of production
The resources that are used to generate services and goods are called factors of production or productive factors . Economic theory generally recognizes three main factors: labor , land , and capital .
It is important to indicate that products and services make it possible to satisfy human needs. In a capitalist society, companies aim to maximize their profits: with this objective, they must carry out an efficient combination of production factors.
While companies, broadly speaking, aim to produce more goods at the lowest possible cost, workers aspire to earn the highest salary they can. Since higher remuneration leads to increased production costs, there are always tensions between factors.
The labor factor obtains the salary as remuneration.
Characteristics of each one
The labor factor includes all the activities carried out by people within the framework of production. Thanks to these interventions, human beings manage to satisfy needs.
The land factor , meanwhile, is made up of natural resources. The raw materials that are transformed in the production process arise from this factor.
The capital factor , finally, is made up of tangible materials (buildings, machines, etc.) and financial assets (money, bonds). There are analysts who mention human capital in this category, linked to the training or education of workers.
Remuneration of production factors
With their intervention in these processes, the factors have a certain remuneration or compensation . Work, as we already indicated above, receives a salary or salary.
In the case of land, its use generates an income , while capital is compensated with the profits from the surplus value that it adds to the product or service.
An example
Let's take the case of a person who wants to start a productive wine-making project. To achieve this, it requires various production factors.
Land is needed for crops and vines (land factor), as well as people to plant and harvest the grapes (labor factor). Different containers, devices and machinery (capital factor) are also essential for the different phases of production until the product is packaged and available to the final consumer.
In a broad sense, this entrepreneur will seek to make the largest profits he can from producing the wine. It will aim, therefore, to invest as little as possible in the factors of production to maximize profitability .
However, insufficient investment can threaten production or affect the quality of the product. In this way, the subject's vision is key to implementing the appropriate strategy.