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In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilised amounts of the various inputs determine the quantity of output according to the relationship called the production function .
The inputs to the production function are commonly termed factors of production and may represent primary factors, which are stocks. Classically, the primary factors of production were land, labour and capital. Primary factors do not become part of the output product, nor are the primary factors, themselves, transformed in the production process.
The production functions listed below, and their properties are shown for the case of two factors of production, capital (K), and labor (L), mostly for heuristic purposes. These functions and their properties are easily generalizable to include additional factors of production (like land, natural resources, entrepreneurship, etc.)
In macroeconomics, factor shares are the share of production given to the factors of production, usually capital and labor. This concept uses the methods and fits into the framework of neoclassical economics .
However, the transformation of more and more simple commodity production into capitalist production which accompanies industrialisation requires profound changes in property relations, because it must be possible to trade freely in means of production and labour power (the factors of production). Only when that trade becomes possible, can the ...
The firms then spend all of this income on factors of production such as labor, capital and raw materials, "transferring" all of their income to the factor owners (which are households). The factor owners (households), in turn, spend all of their income on goods, which leads to a circular flow of income. [20] [18] [22]
Owners of production factors should possess and master information and knowledge so as to apply them to economic activity. [23] In the knowledge economy, the specialised labor force is characterised as computer literate and well-trained in handling data, developing algorithms and simulated models, and innovating on processes and systems.
In political philosophy, the means of production refers to the generally necessary assets and resources that enable a society to engage in production. [1] While the exact resources encompassed in the term may vary, it is widely agreed to include the classical factors of production (land, labour, and capital) as well as the general infrastructure and capital goods necessary to reproduce stable ...