Video transcript
- [Instructor] An ideathat will keep coming up as you study economics isthe idea of the four factors of production, which areusually listed as land, labor, capital, and entrepreneurship. And the idea here is if youwant to produce anything, so let's just say this circleis the production process, and this arrow is theoutput, you need inputs. Now, you might havemany, many, many inputs. You might need supplies,you might need a factory, you might need peopleto work in the factory, you need all of these different things. But the idea of the fourfactors of production is that these things can all be classified in one of these fourgroups, as either land, labor, capital, or entrepreneurship. Now, these words havemeaning in everyday language. And so, some of it might jump out at you. Of course, if you need to build factory or if you need to farm,you need land to do so. And you can see that in this example here, where we see a farm. Clearly, the need a lotta landin order to have the farm. Even in a garmentfactory, this is a picture of a garment factory frommaybe a hundred years ago, even there, they needed landon which to build the factory. So, this floor is sitting on land. And land doesn't just have to strictly mean land in an economics context. It can mean natural resources in general. This could be things likewater or air or energy. So, in some contexts, instead of land, some people might say natural resources for this first factor of production. Now, another importantfactor of production, and arguably they're allimportant, is the idea of labor. To produce many or most things,someone has to work on it. So, someone had to plant these seeds, and they will have to harvest these crops. The labor is very clear here. You see people putting in work in order to produce theproduct right over there. Now, capital is an interesting one. It means one thing in everyday language, and it means somethingslightly more specific when we talk about itin an economics context. In an economic context, capital is something produced toproduce other things. So, examples of capital would be tools that you use to produce other things. It could be a building that you need in order to produce other things. It could be the machinery in a factory. So, in these two pictures,there's many examples of capital. You could view this table and the tools that these folks areusing, that is capital. You could use, you could viewthe whole building itself and all of the light fixturesand all of that as capital. So, all of this stuff is capital. The hangers that they'reputting the coats on after they produce it, that is capital. In this farm example, thecapital would be the buildings. These were constructed so that they could produce the food from the farm. This little, it looks likesome type of machinery there, that is capital for the farm. It's being used to producethe output of the farm. Now, the place that that'sdifferent than everyday language, in everyday language, whenpeople talk about capital, they'll often include financial capital, financial assets that could be used to get benefit in thefuture, things like money. But in an economic context, we are not considering financial assets, we're only thinking aboutthings that were produced in order to produce other things. The fourth factor ofproduction is entrepreneurship. Entrepreneurship, in our everyday language means putting things together so you're trying to create other things. When someone's an entrepreneur, you might imagine someone who'strying to start a business. In an economic context,it has a related idea. Entrepreneurship is putting together all of the other factors of production so that you can actually produce things. You can't just randomly build buildings and randomly plant seeds. Someone has to think abouthow do you put these things together so that you can producethings in a reasonable way? And obviously, you wannaproduce as much as possible given the other factors that you are putting into the production. A related idea, and it sometimesis used interchangeably in an economics course, is technology. So, sometimes, you'll see thefour factors of production as land, labor, capital,and entrepreneurship; and sometimes, you'll see it listed as land, labor, capital, and technology. But when you see this, when you see technology as a factor of production, don't think about it astechnology in everyday language, where you think ofcomputer chips or software. When people are talking about technology as a factor of production, they are really talkingabout entrepreneurship. They're talking about theknow-how of putting together the other factors of production in order to produce that output. Finally, I wanna leave on one idea, the idea of the two typesof things that could be produced from all of thesefactors of production. Broadly speaking, wecould produce something that could be used to produce more things, and we already talk about it. We could be, in that situation,be producing capital goods. So, that could be that weare constructing a factory that itself maybe producestools for other people to use in some other production process. The other option we have is to produce what are known as consumption goods. Consumption goods. Consumption goods aregoods that are just used. It might make people happy,they might find pleasure in it, but it's not being usedto produce other things. And because our productionresources are scarce, there's a trade-off whena society or a factory or whoever decides howmuch capital to produce versus how much consumption goods. You need some consumption goods; otherwise, frankly, wewouldn't have clothing on. We wouldn't be eating nice meals. We wouldn't be able to enjoy our lives. But at the same time,you also need capital. If we did only consumptiongoods, at some point, we wouldn't have all the things we need to produce the consumption goods. So, it's a very interesting trade-off that we'll explore more in future videos.
