Factor of production

In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, finished goods and services. The utilized amounts of the various inputs determine the quantity of output according to a relationship is called the production function. There are three basic resources or factors of production: land, labor and capital. The factors are also frequently labeled "producer goods or services" to distinguish them from the goods or services purchased by consumers, which are frequently labeled "consumer goods". All three of these are required in combination at a time to produce a commodity.

There are two types of factors: primary and secondary. The previously mentioned primary factors are land, labor (the ability to work), and capital goods. Materials and energy are considered secondary factors in classical economics because they are obtained from land, labour and capital. The primary factors facilitate production but neither become part of the product (as with raw materials) nor become significantly transformed by the production process (as with fuel used to power machinery). Land includes not only the site of production but natural resources above or below the soil. Recent usage has distinguished human capital (the stock of knowledge in the labor force) from labor. Entrepreneurship is also sometimes considered a factor of production. Sometimes the overall state of technology is described as a factor of production. The number and definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of economics.

In the interpretation of the currently dominant view of classical economic theory developed by neoclassical economists, the term "factors" did not exist until after the classical period and is not to be found in any of the literature of that time.

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