Companies use components or factors to manufacture products. The factors of production are land, labor, capital and entrepreneurship. Land refers to soil, metals and all other natural resources. Labor is all of the work carried out by the employees of the company. Capital is the investment required for running the business. Entrepreneurship is the skill and expertise of the company's owner to maintain and sustain the business.
Free Gift of Nature
The supply of resources, such as soil, minerals and water, is basically fixed. Man cannot create these resources. The value of the land depends on its physical location and the resources it contains. Land is bought and sold by individuals. The ownership of the land transfers from one person to another. Also, the production capabilities of land can be changed by man. For example, when man grows wheat on the land, he may be able to produce "x" quantity. When rice is cultivated on the same land, the person may get "2x" quantities.
Land is fixed and immobile. It cannot be transferred from one location to another. Only the value of these resources can be transferred. The value and the fertility of land tend to vary from location to location. Land at one location may be very fertile and may yield good quality crops. The land in another area may be barren, and it may not be possible to grow any kinds of crops.
Primary Factor of Production
Land is a primary factor of production. Companies that produce goods need a physical address to operate. The company may own the land or rent it. The management does not necessarily have to occupy the land. Sometimes, companies may have several offices, plants and warehouses internationally. In such cases, international rules need to be complied with separate from the corporate headquarters.
Passive Factor of Production
Land by itself cannot produce anything for the company. Work needs to be carried out to convert the land into a usable condition. Capital investment is needed on the land to build an office. The company needs to have laborers to construct the premises. Entrepreneurship is required to start, maintain and grow the business.
- Tutor 2 U: factors of production
- Land And Freedom: Factors of Production
- AMOS Web: Factors of Production
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- W.J. McCluskey, Owiti A. K'Akumu, and Washington Olima, "Land Value Taxation -- Chapter One: Theoretical Basis of Land Value Taxation," Page 3. Ashgate Publishing, 2005. Accessed June 17, 2020.
- Lincoln Institute of Land Policy. "Land Value Tax Holds Promise for Cash-Strapped Cities and Towns." Accessed Feb. 5, 2020.
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- Tax Foundation. "Reviewing the Deadweight Loss Effects of High Tax Rates." Accessed Feb. 5, 2020.
Priyanka Jain holds a Master of Business Administration in communication and management from the Mudra Institute of Communications, Ahmadabad, India. She has been writing professionally for more than eight years. She writes for vWorker and various other websites. Jain specializes in articles in the fields of management and finance.