- [Instructor] An idea that will keep coming up
as you study economics is the idea of the four factors
of production, which are usually listed as land,
labor, capital, and entrepreneurship.
And the idea here is if you want to produce anything,
so let's just say this circle is the production process,
and this arrow is the output, you need inputs.
Now, you might have many, many, many inputs.
You might need supplies, you might need a factory,
you might need people to work in the factory,
you need all of these different things.
But the idea of the four factors of production
is that these things can all be classified
in one of these four groups, as either land,
labor, capital, or entrepreneurship.
Now, these words have meaning in everyday language.
And so, some of it might jump out at you.
Of course, if you need to build factory
or if you need to farm, you need land to do so.
And you can see that in this example here,
where we see a farm.
Clearly, the need a lotta land in order to have the farm.
Even in a garment factory, this is a picture
of a garment factory from maybe a hundred years ago,
even there, they needed land on which to build the factory.
So, this floor is sitting on land.
And land doesn't just have to strictly
mean land in an economics context.
It can mean natural resources in general.
This could be things like water or air or energy.
So, in some contexts, instead of land,
some people might say natural resources
for this first factor of production.
Now, another important factor of production,
and arguably they're all important, is the idea of labor.
To produce many or most things, someone has to work on it.
So, someone had to plant these seeds,
and they will have to harvest these crops.
The labor is very clear here.
You see people putting in work
in order to produce the product right over there.
Now, capital is an interesting one.
It means one thing in everyday language,
and it means something slightly more specific
when we talk about it in an economics context.
In an economic context, capital is
something produced to produce other things.
So, examples of capital would be tools
that you use to produce other things.
It could be a building that you need
in order to produce other things.
It could be the machinery in a factory.
So, in these two pictures, there's many examples of capital.
You could view this table and the tools
that these folks are using, that is capital.
You could use, you could view the whole building itself
and all of the light fixtures and all of that as capital.
So, all of this stuff is capital.
The hangers that they're putting the coats on
after they produce it, that is capital.
In this farm example, the capital would be the buildings.
These were constructed so that they could
produce the food from the farm.
This little, it looks like some type of machinery there,
that is capital for the farm.
It's being used to produce the output of the farm.
Now, the place that that's different than everyday language,
in everyday language, when people talk about capital,
they'll often include financial capital,
financial assets that could be used
to get benefit in the future, things like money.
But in an economic context,
we are not considering financial assets,
we're only thinking about things that were produced
in order to produce other things.
The fourth factor of production is entrepreneurship.
Entrepreneurship, in our everyday language
means putting things together
so you're trying to create other things.
When someone's an entrepreneur,
you might imagine someone who's trying to start a business.
In an economic context, it has a related idea.
Entrepreneurship is putting together
all of the other factors of production
so that you can actually produce things.
You can't just randomly build buildings
and randomly plant seeds.
Someone has to think about how do you put these things
together so that you can produce things in a reasonable way?
And obviously, you wanna produce as much as possible
given the other factors that you
are putting into the production.
A related idea, and it sometimes is used interchangeably
in an economics course, is technology.
So, sometimes, you'll see the four factors of production
as land, labor, capital, and entrepreneurship;
and sometimes, you'll see it listed
as land, labor, capital, and technology.
But when you see this, when you see
technology as a factor of production,
don't think about it as technology in everyday language,
where you think of computer chips or software.
When people are talking about technology
as a factor of production,
they are really talking about entrepreneurship.
They're talking about the know-how of putting together
the other factors of production
in order to produce that output.
Finally, I wanna leave on one idea,
the idea of the two types of things that could be
produced from all of these factors of production.
Broadly speaking, we could produce something
that could be used to produce more things,
and we already talk about it.
We could be, in that situation, be producing capital goods.
So, that could be that we are constructing a factory
that itself maybe produces tools for other people
to use in some other production process.
The other option we have is to produce
what are known as consumption goods.
Consumption
goods.
Consumption goods are goods that are just used.
It might make people happy, they might find pleasure in it,
but it's not being used to produce other things.
And because our production resources are scarce,
there's a trade-off when a society or a factory
or whoever decides how much capital to produce
versus how much consumption goods.
You need some consumption goods;
otherwise, frankly, we wouldn't have clothing on.
We wouldn't be eating nice meals.
We wouldn't be able to enjoy our lives.
But at the same time, you also need capital.
If we did only consumption goods, at some point,
we wouldn't have all the things we need
to produce the consumption goods.
So, it's a very interesting trade-off
that we'll explore more in future videos.