Factors of production and circular flow of income - Coursework Example

These factors are divided into four main categories: Land is the first category; land entails all the natural resources. Labor is another factor which simply refers to man power or human resources available for production through the utilization of natural resources and others. The third factor is capital also referred to as the man-made resources. Last but not least is Enterprise; which combines the other three factors or resources for production purpose. The factors are also classified in terms of management, money, materials and machines (Gitman, & McDaniel, 2009, Pg. 5). Where management depicts land resources, machines refer to labor, capital is equated to materials and enterprise to money.

They are termed as factors of production since they are scarce resources, which are useful for the creation of services and goods, though, not for immediate and direct satisfaction of human needs. Economists simplify the different sorts of factors of production into broad categories to assist in understanding these factors of production. Land as a factor of production involves anything that comes from it. The most common land resources include water, oil, minerals, forests, gas and others. The land resources form the raw resources or materials in the production process.

Natural resources are classified in three kinds such as chemical nature, their availability and abundances and lastly their distribution. Chemical nature resources entail inorganic resources such as air, minerals and water. Organic resources of the chemical nature refer to animals, plants, microorganisms and fossil fuels. The last chemical nature category includes mixed resources like soils. The other category of land resources is abundance and availability which entails in exhaustible or exhaustible resources.

Exhaustible resources entails renewable and non-renewable, whereas renewable resources can sustain themselves or be replaced if properly managed. Non-renewable resources are lost forever once has been used. The distribution category involves national, multinational and international resources, which are used to create resources. The revenue that resource proprietors receive in return for land amenities is known as rent. The next factor of production to analyze is labor. Labor as a factor of production is the effort that human beings contribute to the production of services and goods.

Labor resources encompass the activities of the people to facilitate service provision and production of goods to assist in day to day activities. Labor resources are almost contributed by people who have attained age of working to earn. This is because economist says that if one has ever been paid for the work he or she did then in that way has contributed labor resources; thus, has enabled production of goods and services. The income obtained from labor resources is referred to as wages and forms the greatest source of income for the majority.

The third resource of production is capital. According to economist, capital as a factor of production refers to tools, machineries or other instruments that humans use to produce goods and services. Capital as a resource of production differs; this is because different services and goods require different resources to produce them. The income that is gained from capital as a fact