The Four Factors of Production (Edexcel IGCSE Business)

Capital, Enterprise, Land & Labour

• Factors of production are the resources used to produce goods & services
  

Diagram: The Four Factors of Production

The four factors of product are land, capital, labour and enterprise

• The production of any good/service requires the use of a combination of all four factors of production

  • Goods are physical objects that can be touched (tangible) e.g. mobile phone

  • Services are actions or activities that one person performs for another (intangible) e.g manicure, car wash
     

An Explanation of the Four Factors of Production

Factors of Production in Capital Intensive & Labour Intensive Activities

Capital-intensive Processes and the Factors of Production

• In capital-intensive processes there is an emphasis on the use of machinery and technology in production

• Labour is used to complete processes that require specialist skills such as design or to oversee the operation of machinery

Some of the Factors of Production Required to Produce a Motor Car

• Increased labour costs may encourage businesses to become more capital intensive over time

• High-output manufacturing businesses are well-suited to employ capital-intensive methods

• Rapid advances in technology have made more capital-intensive processes more affordable for smaller businesses

  • E.g. Developments in 3D printing has brought down the cost of computer-aided design
    

• Drawbacks of capital-intensive production include

  • High costs to set up and maintain machinery

  • Breakdowns can cause significant disruption to production

  • Job losses may result when equipment is introduced

  • Limited flexibility as machinery is specialised for particular tasks
    

Labour-intensive Processes and the Factors of Production

• In labour-intensive processes there is an emphasis on the use of workers in production

• Machinery is used to complete processes that are hazardous or continuous e.g. fermentation

Some of the Factors of Production Required in Viticulture (Winemaking)

• Labour-intensive production is more suited to the production of specialised output where quality and variation are key unique selling points or where the volume of output is small

• When labour costs are low, there is little incentive to employ more machinery in the production process

  • E.g. Labour costs are relatively low in countries such as Thailand and Vietnam where clothing is mass-produced using highly labour-intensive processes
    

• Drawbacks of labour-intensive production include

  • Humans cannot work for as long or as intensely as production machinery

  • Employee costs can increase with the introduction of minimum wage legislation or safety rules

  • Workers require training and may need incentives to motivate them