Question

Explain how the five factors of production relate to the growth of entrepreneurship and the growth of firms

Answer 1

Below are the five factors of production:

- Land

- Labor

- Capital

- Entrepreneurship

- Finance Capital

Their individual contribution to economic growth is given below

1. Land

Land is used as an input to the production process. People can earn income from land in the form of rent. In classical economics, Land is defined as the origin of economic value. Different land pieces have different economic values. Many firms want to set up their plants at a location where the demand is high and can easily sell their output.

2. Labor

Labor is the work done by human which contributes to the production process. Income earned by giving labor services is called wages. Indeed, without labor, a production process cannot be completed.

3. Capital

Capital is also an important factor of production. Every production process needs initial capital to be invested. This capital may be invested into purchasing raw material or buying equipments etc. The reward given to owners of capital is called interest.

4. Entrepreneurship

An entrepreneur basically brings the above three factor of production together. Entrepreneurs open small start ups, help big businesses by giving then innovative ideas. They take risk and in reward they get the profit. They create small jobs for the needy ones and contribute to the growth of the economy.

5. Finance Capital

Finance capital includes everything which increases wealth of the people. Finance capital is used to build retirement portfolios and to invest in various economic projects. In a way, it gives necessary capital to people to operate the production of goods and services.

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