The Story of Village Palampur - Factors of Production (Part -1)

Factors/Requirements for Production

• Every production is organised by combining land, labour, physical capital and human capital, which are known as Factors of Production.
• There are 4 factors/requirements for the production of goods and services.

1. Land and Raw Materials: - They are a gift of nature and it is essential for any sort of production
2. Labour:-

• Labour refers to the people who work for the production of goods and services.
• There are 3 types of Labour - Skilled / Semi-Skilled  and Unskilled
• Some production activities require highly educated workers to perform the necessary tasks, whereas some other require workers who can do work manually.

3. Capital/Physical Capital : -

• Capital refers to the investments made to produce goods and services.
• There are 2 types of Capital namely Fixed Capital & Working Capital.

• Fixed Capital: The part of physical capital which can be used in process of production over many years and cannot be altered in short periods. Tools, Machinery, Building etc.
• Working Capital: The part of physical capital which can be used in production to make payements and buy other necessary item in short periods.  Raw Materials, Money in Hand

4.  Human Capital : -  

• The person having knowledge & enterprise puts together land, labour and physical capital to produce an output either for himself or to sell in the market. This is the Human Capital.
• Without Human Capital land, labour and capital are useless. Therefore it is the most important factor/requirement for production .