Production Factors

The factors of production are those that are used for the production of goods and services. Capital, land and labor are the most important. An example of the definition cited above is the sale of gasoline in a service station, the work would be represented by the time used by the used in making the sale, the physical space where the gas station takes place would be the land and the capital will be represented by the deposits and dispensers of gasoline.

In many respects, factor markets are similar, but differ in demand. The demand for a factor of production of a company will derive from its decision to offer a good in another market. For example, the demand of those in charge of service stations is inextricably linked to the supply of gasoline.

The demand for labor: labor markets in a similar way to others in the economy are governed by the forces of supply and demand, which will subsequently determine the price of the product to be offers. These labor markets differ from others since their demand is called a derived demand, mostly labor services are factors that are used to produce other goods. Companies must decide how much work they demand in order to maximize profits.

Other aspects that are considered in this sense are the production function and the marginal product of labor, where the first is defined as the relationship between the amount of factors used to produce a good and the amount of production of that good, while The marginal product of labor is defined as the increase in the quantity of production when one more unit of job.

It is also important that the job offer is taken into account after its demand is analyzed. Considering also the displacements of the supply of the same and evaluating those factors that produce this effect. In addition to this, consider also the factors of production such as land and capital where a balance must be established between the two to guarantee profits from the production process.

In many situations these factors of production are used together, so the productivity of each will depend on the quantities used by the rest in the production process. The variation of the offer in one of the factors will bring as a consequence the alteration of the income of the rest.

In classical economics, it is considered that to produce benefits you must have resources, or production factors, which are the means with which the company has to profit. Traditionally, the factors of production have been four: land, labor, capital and company.

• Earth. Land is an important factor in production, landowners earn money from it through rents. The land can be sold, bought or rented and, in this way, profits are made from it.
• Job. It is one of the most common ways to make a profit. Companies sue workers to perform a task in exchange for which they will receive a salary. Companies pay their workers for a service performed, but they also take care of the workers' expenses: health insurance, unemployment, training,... This dependence of the company to work means that it is necessary to take into account the expenses and taxes derived from the hiring of a worker, if the worker's expenses do not compensate for those of production, because, for example, taxes are high, a situation of unemployment.
• Capital. Money is essential in the Economy, and it is considered one of its four pillars. Production uses a large amount of capital, but not always in the form of money, machinery, buildings and infrastructure They are also part of the capital of a company and, in the same way, raw materials in storage and products are production capital. semi-finished. Capital can also be the shares and participation bonds of a company. Human capital is, on the other hand, the economic potential that a person has, and that can be innate, or acquired through studies and higher or specialized education. The relationships and ties that a company maintains with others can also be considered part of the capital.
• Business. The idea of ​​creating a company is considered part of the production factors, due to the potential benefit that it can create, and here it is also The entrepreneur is fundamental, who by assuming risks and making decisions, is the fundamental piece so that the company can grow and give the maximum benefit.