IGCSE Economics Paper-2: Specimen Questions with Answers 47 - 47 of 100

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Setting prices of the product is difficult. Too high prices can lead to reduction in sales.

Question 47 (1 of 5 Based on Passage)

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With example explain the four factors of production

Explanation

Factors of Production

The Different Factors of Production Are

  • Land/Natural Resources: Land is a broad area as a factor of production. Land refers to all the natural resources. These resources are a gift of nature. Examples of Land (natural resources) are coal, gas, forest, natural gas, oil, copper etc. Land can be used from agricultural purpose to commercial real estate use as well as the other natural resources derived from nature. The resources can be renewable form of resources, like forests, or non-renewable resource like as oil or natural gas. The income earned on land or any other natural resource is called rent.
  • Labor: As a factor of production labor means, involvement of any human input. Labor does the work of production and contributes to the total output. Skills, education, motivation, and other factors help in determining the quality of labor. The higher the quality of labor is directly proportional to the better productive workforce. Examples of labor are- artists producing art, or programmers creating software, food service workers, construction workers, or factory workers etc.
  • Capital: Capital means the manufactured resources such as factories and machines. These are man-made goods which are used in the production of other products. The modern, economists consider capital as the main source of resource. Examples of capital are- hammers, forklifts, conveyor belts, computers, and delivery vans etc. The income earned on capital resources is known as interest.
  • Entrepreneurship: Entrepreneur is a person who takes the economic risk in combining all the other three factors of production together. Entrepreneurs are an important factor of production which helps in the economic growth different scales. Entrepreneurs contribute to the growth of the economy. Government puts in lot of efforts to promote entrepreneurship by utilizing the right combination of policies to make starting a business accessible. An entrepreneur receives payment in the form of profit. It is the reward of taking risk.

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