Factors of Production

The four factors of production (land, labour, capital and entrepreneurship), human capital, interest and dividends, supply chains and Corporate Social Responsibility.

Key ideas

Production needs land (all natural resources), labour (physical and mental effort), capital (machines, tools, buildings, money) and entrepreneurship, with technology helping.
Entrepreneurship is starting a new enterprise and taking risks to solve a problem; a startup aims to grow quickly using technology.
Human capital is the skills and knowledge of workers, built by education, training and healthcare.
Labour-intensive production relies on workers; capital-intensive production relies on machines.
Borrowers pay interest to lenders; companies pay dividends to shareholders from profits.
A supply chain is the network of people, firms and resources that make and sell a product.
Corporate Social Responsibility means businesses also contribute to society and the environment.

Remember

Four factors	land, labour, capital, entrepreneurship
Interest	paid by a borrower to a lender
Dividend	paid by a company to shareholders
Kaizen	Japanese idea of continuous improvement
CSR law	2014: 2% of average profit
Average	sum of the values ÷ how many there are
India’s first airline	started by J. R. D. Tata in 1932

Watch out

Thinking land means only soil: it is all natural resources.
Mixing up interest (on a loan) and a dividend (from profits).
Taking 2% of one year’s profit instead of the average.

Worked example

A company’s profits were ₹430 crore, ₹540 crore and ₹530 crore. (a) What is the average? (b) How much must it spend on CSR at 2%? (c) Suggest two good uses for CSR money.

Working: (430 + 540 + 530) ÷ 3; 2% of that

Answer: (a) ₹500 crore (b) ₹10 crore (c) Schools, health camps, clean water or planting trees.