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Four factors of production | AP Microeconomics | Khan Academy - YouTube
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an idea that will keep coming up as you
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study economics is the idea of the four
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factors of production which are usually
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listed as land labor capital and
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entrepreneurship and the idea here is if
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you want to produce anything so let's
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just say the circle is the production
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process and this arrow is the output you
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need inputs now you might have many many
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many inputs you might need supplies you
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might need a factory you might need
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people to work in the factory you need
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all of these different things
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but the idea of the four factors of
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production is that these things can all
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be classified in one of these four
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groups as either land labor capital or
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entrepreneurship
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now these words have meaning in everyday
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language and so some of it might jump
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out at you of course if you need to
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build a factory or if you need a farm
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you need land to do so and you can see
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that in this example here where we see a
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farm clearly they need a lot of land in
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order to have the farm
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even in a garment factory this is a
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picture of a garment factory from maybe
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100 years ago
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even there they needed land on which to
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build the factory so this floor is
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sitting on land and land doesn't just
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have to strictly mean land in an
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economics context it can mean natural
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resources in general this could be
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things like water or air or energy
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so in some contexts instead of land some
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people might say natural resources for
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this first factor of production
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now another important factor of
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production and arguably they are all
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important is the idea of labor to
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produce many or most things someone has
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to
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work on it so someone had to plant these
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seeds and they will have to harvest
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these crops the labor is very clear here
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you see people putting in work in or in
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order to produce the product right over
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there
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now capital is an interesting one it
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means one thing in everyday language and
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it means something slightly more
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specific when we talk about it in an
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economics context
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in an economic context capital is
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something produced to produce other
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things so examples of capital would be
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tools that you use to produce other
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things it could be a building that you
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need in order to produce other things it
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could be the machinery in a factory so
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in these two pictures there's many
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examples of capital you could view this
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table and the tools that these folks are
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using that is capital you could use you
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could view the whole building itself and
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all of the light fixtures and all of
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that as capital so all of this stuff is
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capital the hangers that they're putting
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the coats on after they produce it that
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is capital in this farm example the
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capital would be the buildings these
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were constructed so that they could
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produce the the food from the farm
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this little looks like some type of
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machinery there that is capital for the
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farm it's being used to produce the
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output of the farm now the place that
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that's different than everyday language
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in everyday language when people talk
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about capital they'll often include
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financial capital financial assets that
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could be used to get benefit in the
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future things like money but in an
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economic context we are not considering
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financial assets we're only thinking
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about things that were produced in order
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to produce other things
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the fourth factor of production is
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entrepreneurship entrepreneurship in our
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everyday language means putting things
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together so you're trying to create
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other things when someone's an
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entrepreneur you might imagine someone
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who's trying to start a business in an
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economic context it has a related idea
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entrepreneurship is putting together all
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of the other factors of production so
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that you can actually produce things you
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can't just randomly build buildings and
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randomly plant seeds someone has to
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think about how do you put these things
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together so that you can produce things
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in a reasonable way and obviously you
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want to produce as much as possible
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given the other factors that you are
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putting into the production a related
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idea and it sometimes is used
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interchangeably in an economics course
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is technology so sometimes you'll see
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the four factors of production as land
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labor capital and entrepreneurship and
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sometimes you'll see it listed as land
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labor capital and technology
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but when you see this when you see
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technology as a factor of production
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don't think about it as technology in
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everyday language where you think of
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computer chips or software when people
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are talking about technology as a factor
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of production they are really talking
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about entrepreneurship they're talking
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about the know-how of putting together
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the other factors of production in order
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to produce that output finally i want to
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leave on one idea the idea of the two
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types of things that could be produced
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from all of these factors of production
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broadly speaking we could produce
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something that could be used to produce
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more things and we already talked about
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it we could be in that situation be
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producing capital
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goods so that could be that we are
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constructing a factory that itself maybe
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produces tools for other people to use
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in some other production process
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the other option we have is to produce
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what are known as consumption goods
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consumption
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goods
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consumption goods are goods that are
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just used it might make people happy
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they might find pleasure in it but it's
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not being used to produce other things
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and because our production resources are
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scarce there's a trade-off when a
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society or a factory or whoever decides
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how much capital to produce versus how
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much consumption goods you need some
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consumption goods otherwise frankly we
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wouldn't have clothing on we wouldn't be
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eating nice meals we wouldn't be able to
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enjoy our lives but at the same time you
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also need capital if we did only
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consumption goods at some point we
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wouldn't have all the things we need to
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produce the consumption goods so it's a
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very interesting trade-off that we'll
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explore more in future videos
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