Factors of production are another word for economic resources. There are 4 factors of production:

• Land

• Labour

• Capital

• Enterprise (some economists argue about enterprise being a 4th FOP and consider it to be rather a special form of labour)

  
  

These 4 FOPs are required to make every good or service present in the economy, but the proportion can differ from entity to entity. For example, a business may use more labour compared to capital or vice versa.

Let's look into each FOP in detail.

Land: This not only includes the physical acres of land but also includes all natural resources that the Earth has to offer, which are used in the production of goods and services. Water is also land, so is coal, and so is the sea, and so is what is found in the sea, such as fish.

Labour: This does not mean workers, but the effort that the workers put into producing the good or service. It covers all human effort, both physical and mental effort.

Capital: This contains all the human-made goods, such as machinery, used in the further production of goods and services. Capital is also referred to as capital goods. Economists distinguish between capital and consumer goods. Capital goods are wanted for what they can produce and not for their own sake. On the other hand, consumer goods are wanted for the satisfaction they can provide to their consumers. Some goods can be both capital and consumer goods, but what decides their identity is how they are used. For example, a chocolate bought by you to eat is a consumer good as you are using it for yourself, but when a baker buys that same chocolate to use as ganache on his cakes, it is a capital good. Understand the difference? You bought the chocolate for your own satisfaction, but the baker bought it for further production of a good, which was his cakes.

Pro Tip: Money/cash is NOT capital in economics.

Enterprise: It is the risk-taking and decision-making ability of a person who combines all the other 3 FOPs to produce goods and services. Such people are entrepreneurs who decide what is produced based on consumer demand and other factors. They bear risks such as losing their money and their business failing.

Mobility of the Factors of Production

Land: Most land is occupationally mobile, meaning it can be used for a number of purposes. For example, land used for building houses can also be used for farming. Trees used to build tables can be used to make chairs. However, land traditionally is geographically immobile, as a piece of land from the USA cannot be shifted to Russia. But in a wider sense, some land can be geographically mobile — for example, courses of rivers can be diverted, and some wildlife can be moved.

Labour: The mobility of labour varies, as some people with high skills and more training may be more occupationally mobile. There may be more job opportunities for a consultant than for a miner. In terms of geographical mobility, a number of factors affect this:

• Differences in the price and availability of housing in different areas and countries – Workers who lose their jobs in poor areas may not be able to take up jobs in rich areas because they cannot afford or find housing there.

  
  

• Family ties – People may be reluctant to leave the country they are currently living in because they do not want to move away from friends and relatives.

  
  

• Differences in educational systems in different areas and countries – People may not be willing to move to a job elsewhere if it disrupts their children’s education.

  
  

• Lack of information – People without jobs, or those in poorly paid jobs, may stay where they are because they are unaware of job opportunities elsewhere.

  
  

• Restrictions on the movement of workers – It is often necessary to obtain a work visa to work in another country, and these can be limited in supply.

  
  

Factors affecting occupational mobility of labour include the lack of information about vacancies, less training/education/skills and qualifications, and fewer job prospects altogether.