What are Factors of Production?
How do Factors of Production work?
Without land, labor and capital, it's virtually impossible to create goods and services. Land, for example, provides raw materials such as lumber, minerals and metals. Labor represents the people and skills necessary to manipulate, process, distribute, and handle raw materials as well as finished goods and services. Capital represents the necessary to new ventures, as well as pay for land and labor. It also increases labor's ability to produce wealth.
Why do Factors of Production matter?
The foundation of most economic theories rests on opinions about the proper distribution of wealth among the holders of land, labor, capital, and in some cases, entrepreneurship. All the factors of production depend on each other for the creation of goods and services.