![]() We have so far seen that people receive different types of incomes – rent, wages, interest, and profit. Income Types: Factor Income and Non-Factor Income ![]() Note: The income accruing to the entrepreneur is termed as profit. Think of the entrepreneurship of Bill Gates, Elon Musk, or Jeff Bezos. The one who takes this initiative is termed an entrepreneur.Īn entrepreneur is a person who combines the other factors of production – land, labour, and capital – to earn a profit. Unless somebody takes an initiative, no business can be started. These days, entrepreneurship (the knowledge and skillset) is also known as Human Capital. Thus the fourth factor of production is entrepreneurship. Only those with knowledge and entrepreneurial skills will be able to put together land, labour and physical capital and produce an output. ![]() Human Capital (Entrepreneurship OR Entrepreneur OR Enterprise) Note: The income earned by owners of capital resources is interest. It is not money but the capital goods such as machinery and tools bought by the money that are used to produce goods and services. Only if it is a productive resource, it can be considered as capital (fixed capital). This is because money merely facilitates trade, but it is not in itself a productive resource. You should note here that some economists do not consider money in hand as capital. Unlike tools, machines and buildings, these are used up in production. Raw materials and money in hand are called working capital. ![]() Tools, machines, buildings etc that can be used in production over many years are called fixed capital. Physical capital can be broadly divided into two categories – Fixed Capital and Working Capital. For example, a stethoscope is the capital of a doctor. Physical Capital (Man-made Resources)Ĭapital includes all the man-made resources used for producing goods and services like buildings, machines, equipment, vehicles, stock of materials etc.Ĭapital denotes all tools humans use to produce goods and services. Note: The income earned by labour resources is called wages. Labour include physical and mental labour. The second factor of production – Labour – includes all efforts of human beings used for the production of goods and services. While natural resources are one factor of production, human resources are another. Note: The income that the owners of the land earn in return for land resources is called rent. Most of the natural resources like soil, water, forests, minerals, petroleum, sunlight, wind etc come under the category of land – the first factor of production. This includes not just land, but anything that comes from the land. However, in economics, by land, we mean all that is given to us free by nature. He is the person who decidesĪ person who takes these decisions along with the associated risk is an entrepreneur.Every production is organised by combining land, labour, physical capital and human capital, which are known as factors of production.
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