Factors of production
Factors of production are resources used to produce goods and services. The traditional categories are land, labor, capital, and entrepreneurship.
Land (economics): Natural resources used in production, including land, minerals, water, and other materials. This factor covers productive resources supplied by nature rather than created through work or investment.
Production: The process of transforming inputs into goods or services. Factors of production are the inputs combined in this broader process.
Labor market: A market in which workers supply labor and employers demand it. It is where the labor factor is matched with employers and paid wages.
Intermediate goods: Goods used as inputs to produce other goods or services rather than for final consumption. They are production inputs, but economists distinguish them from primary factors such as labor and land.
Labor economics: The study of workers, employment, wages, and labor markets. Labor is human effort applied to producing goods and services.
Marginal product: The additional output produced by using one more unit of an input, holding other inputs constant. It measures the extra output attributable to adding a factor.
Capital accumulation: The growth of an economy's stock of productive physical assets through investment. It expands the capital available for future production.
Financial capital: Funds and financial claims that can finance investment or purchases. It is often called capital, but unlike physical capital it is not itself a productive asset.
Physical capital: Man-made productive assets, such as machinery, tools, buildings, and infrastructure. This factor consists of durable assets used to produce other goods and services.
Diminishing marginal returns: The decline in additional output from successive units of an input when other inputs are fixed. It explains why expanding one factor alone may yield progressively smaller gains.