This scarcity of resources means that producing some goods and services leaves other goods and services unproduced. The machines and the factory used to produce the jeans are limited capital resources that could have been used to produce other goods. The workers who cut and sewed the denim in the factory are limited labor resources who could have been producing other goods or services in the economy. The land and water used to grow the cotton is limited and could have been used to grow a variety of different crops. The denim is made of cotton, grown on the land. In case you have forgotten, scarcity is described as limited quantities of resources to meet unlimited wants. Remember, goods and services are scarce because the factors of production used to produce them are scarce. When was the last time you saw a carpenter pounding a nail with a five dollar bill or a warehouse foreman lifting a pallet with a 20 dollar bill? Money merely facilitates trade, but it is not in itself a productive resource. While money can be used to buy capital, it is the capital good (things such as machinery and tools) that is used to produce goods and services. You might ask, isn't money a type of capital? Money is not capital as economists define capital because it is not a productive resource. You will notice that I did not include money as a factor of production. The payment to entrepreneurship is profit. Entrepreneurs thrive in economies where they have the freedom to start businesses and buy resources freely. Entrepreneurs are a vital engine of economic growth helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood. Think of the entrepreneurship of Henry Ford or Bill Gates. Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist. The most successful entrepreneurs are innovators who find new ways to produce goods and services or who develop new goods and services to bring to market. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit. The fourth factor of production is entrepreneurship. The income earned by owners of capital resources is interest.

Your teacher may use textbooks, desks, and a whiteboard to produce education services. For example, a doctor may use a stethoscope and an examination room to provide medical services. Capital differs based on the worker and the type of work being done. Some common examples of capital include hammers, forklifts, conveyer belts, computers, and delivery vans. Think of capital as the machinery, tools and buildings humans use to produce goods and services. The third factor of production is capital. The income earned by labor resources is called wages and is the largest source of income for most people. If you have ever been paid for a job, you have contributed labor resources to the production of goods or services. It includes an artist's creation of a painting as well as the work of the pilot flying the airplane overhead. Labor resources include the work done by the waiter who brings your food at a local restaurant as well as the engineer who designed the bus that transports you to school. Labor is the effort that people contribute to the production of goods and services. The second factor of production is labor. The income that resource owners earn in return for land resources is called rent. These resources can be renewable, such as forests, or nonrenewable such as oil or natural gas.

Land resources are the raw materials in the production process. Some common land or natural resources are water, oil, copper, natural gas, coal, and forests. This includes not just land, but anything that comes from the land. The first factor of production is land, but this includes any natural resource used to produce goods and services. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship. The factors of production are resources that are the building blocks of the economy they are what people use to produce goods and services.

Four factors of production land