1.1.2 Economic resources
What are the 4 factors of production?
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AQA E CON 1: M ARKETS AND
MARKET FAILURE
1.1.2 W HAT
YOU NEED TO KNOW

Candidates should understand the economists’
classification of economic resources into land,
labour, capital and enterprise, which are the
factors of production

Candidates should also understand the
distinction between free goods and economic
goods
FACTORS OF PRODUCTION AS
ECONOMIC RESOURCES

Factors of production are the resources used by firms to
produce goods and services

They are called factor inputs

firms input these factors into the production process
LAND
LABOUR
CAPITAL
ENTERPRISE

The factors of production are known as economic resources
as they earn reward for their use in the form of rent, wages,
interest and profit

Firms take these resources and turn them into products that
they sell for profit
Pick any object in your classroom – what are the factor inputs?
L ABOUR

Labour includes all of the workforce in an economy

Every worker is unique

we all have different skills, qualifications and
experience

The value of a worker is called its human capital

A worker can be valued by the income they earn

Education and training are likely to increase our
human capital

how much are your A Levels worth to you?
T HINK
LIKE AN ECONOMIST
Discussion point
Why is a top footballer, who entertains, likely to be worth
more than a nurse, who might save your life?
What do you think are the top paid jobs in the UK?
L AND

Land encompasses all of the natural resources that
come from the earth that are used in the production
of goods or services

This can include resources:

below the earth e.g. oil

on the earth e.g. crops

above the earth e.g. air

in the sea e.g. fish
Shell sees an end to easy oil
C APITAL
Can you think of some
other examples where a
good can be both used
for consumption and
capital?

Capital has a number of meanings e.g. money

As a factor of production it refers to the man-made aids
that are used in the production process e.g. machinery,
tools, factories and offices

Capital goods will bring a stream of income in the future
rather than being consumed today
Major capital
investments have
occurred in the UK in
recent years.
Can you name 3?

e.g. a car used for leisure purposes is a consumption good,
but one used as a taxi is a capital good
E NTERPRISE
How important
are
entrepreneurs
to the UK
economy?

The entrepreneur takes land, labour and capital and
organises them in order to produce products that will be
profitable

The skills of the entrepreneur are crucially important to the
health of the UK economy

By taking risks the entrepreneur creates wealth and
employment in the economy

Today’s small businesses are the large businesses of
tomorrow

Profit is the reward for the entrepreneur
FACTORS

OF
P RODUCTION
Draw a spider diagram to show your understanding of
the factors of production in relation to HS2
“Whitehall watchdog says its economic benefits are unclear.”
To what extent do you agree?
S TATE
AND EXPLA IN
2
FAC TO RS O F PROD UC TION THAT
WOULD BE USED IN THE PRODUCTION OF EACH OF
THE FOLLOWIN G EXAMP L E S .
ENSUR E YOU C OVER ALL
State
Fast food meal 1
Fast food meal 2
Spanish package holiday 1
Spanish package holiday 2
Horse riding school 1
Horse riding school 2
A C ROSS
4 FAC TORS .
Explain
THE EXAMPL E S
F REE
Opportunity cost is
the benefit lost of
the next best
alternative when
making a choice.
GOODS

Free goods are those that have an infinite supply i.e. they are unlimited

If an individual was to use a free good it would still be available for other
individuals to use as its supply is limitless

As these goods are not scarce there is no opportunity cost to using them

This means an individual can consume a free good without losing out on consuming
other goods

Free goods have no cost of production

The air that we breathe is an example of a free good
E CONOMIC
GOODS

Economic goods are those that are scarce in their supply i.e. they are limited

If an individual was to use an economic good it would no longer be available for
other individuals to use as its supply is limited

As these goods are scarce there is an opportunity cost to using them. This
means an individual that consumes an economic good will lose out on the
consumption of alternative goods

Economic goods cost to produce

The range of goods and services bought in different markets are examples of
economic goods
Q UICK


TEST
Which of the following is an example of a factor of
production?
a)
Sales revenue enjoyed by a firm
b)
Output by workers
c)
A factory owned by a business
d)
The annual profits achieved by a business
Can you explain your answer?
Q UICK


TEST
Which of the following is an example of an economic
resource?
a)
Consumer demand
b)
Factory output
c)
Entrepreneurial skill
d)
Scarcity
Can you explain your answer?
Q UICK


TEST
Which one of the following statements about a free
good is true?
a)
They are scarce
b)
There is a finite supply
c)
There is no opportunity cost
d)
Provided by the government at no charge to the
consumer
Can you explain your answer?
T EST
YOURSELF
1.
With the use of relevant examples explain the 4
factors of production.
2.
Distinguish between free and economic goods.