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Video transcript

an idea that will keep coming up as you study economics is the idea of the four factors of production which are usually listed as land labor capital and entrepreneurship and the idea here is if you want to produce anything so let's just say this circle is the production process and this arrow is the output you need inputs now you might have many many many inputs you might need supplies you might need a factory you might need people to work in the factory you need all of these different things but the idea of the four factors of production is that these things can all be classified in one of these four groups as either land labor capital or entrepreneurship now these words have meaning in everyday language and so some of it might jump out at you of course if you need to build a factory or if you need to farm you need land to do so and you can see that in this example here where we see a farm clearly they need a lot of land in order to have the farm even in a garment factory this is a picture of a garment factory for maybe a hundred years ago even there they needed to land on which to build the factory so this floor is sitting on land and land doesn't just have to strictly mean land in an economics context it can mean Natural Resources in general this could be things like water or air or energy so in some contexts instead of land some people might say natural resources for this first factor of production now another important factor of production and arguably they are all important is the idea of labor to produce many or most things someone has to work on it so someone had to plant these seeds and they will have to harvest these crops the labor is very clear here you see people putting in work and in or in order to produce the product right over there now capital is an interesting one it means one thing in everyday language and it means something slightly more specific when we talk about it in an economics context in an economic context capital is something produced to reduce other things so examples of capital would be tools that you use to produce other things it could be a building that you need in order to produce other things it could be the machinery in a factory so in these two pictures there's many examples of capital you could view this table and the tools that these folks are using that is capital you could use you could view the whole building itself and all of the light fixtures and all of that as capital so all of this stuff is capital the hangars that they're putting the coats on after they produce it that is capital in this farm example the capital would be the buildings these were constructed so that they could produce the the food from the farm this little looks like some type of machinery there that is capital for the farm it's being used to produce the output of the farm now the place that that's different than everyday language and everyday language when people talk about capital they'll often include financial capital financial assets that could be used to get benefit in the future things like money but in an economic context we are not considering financial assets we're only thinking about things that were produced in order to produce other things the fourth factor of production is entrepreneurship entrepreneurship in our everyday language means putting things together so you're trying to create other things when someone's an entrepreneur you might imagine someone who's trying to start a business in an economic context it has a related idea entrepreneurship is putting together all of the other factors of production so that you could actually produce things you can't just randomly build buildings and randomly plant seeds someone has to think about how do you put these things together so that you can produce things in a reasonable way and obviously you want to produce as much as possible given the other factors that you are putting into the production a related idea and it sometimes is used interchangeably in an economics course is technology so sometimes you'll see the four factors of production is land labor capital and entrepreneurship and sometimes you'll see it listed as land lay our capital and technology but when you see this when you see technology as a factor of production don't think about it as technology in everyday language where you think of computer chips or software when people are talking about technology as a factor of production they are really talking about entrepreneurship they're talking about the know-how of putting together the other factors of production in order to produce that output finally I want to leave on one idea the idea of the two types of things that could be produced from all of these factors of production broadly speaking we could produce something that could be used to produce more things and we already talked about it we could be in that situation be producing capital goods so that could be that we are constructing a factory that itself maybe produces tools for other people to use in some other production process the other option we have is to produce what are known as consumption goods consumption goods consumption goods are goods that are just used it might make people happy they might find pleasure in it but it's not being used to produce other things and because our production resources are scarce there's a trade-off when a society or a factory or whoever decides how much capital to Bruges versus how much consumption goods you need some consumption goods otherwise frankly we wouldn't have clothing on we wouldn't be eating nice meals we wouldn't be able to enjoy our lies but at the same time you also need capital if we did only consumption goods at some point we wouldn't have all the things we need to produce the consumption goods so it's a very interesting trade-off that we'll explore more in future videos
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