Standard: SS6E7 a, b, c, d
Essential Question: How do the 4 factors of production affect how companies produce goods and services?
Name: Date: Per: T.o.C. #
Four Factors of Production
Background Reading:
Let’s remember the three basic economic questions that all economic systems must answer:
What to produce?
How to produce?
For whom to produce?
After a business decides what to make, they have to decide how to make
it. They have to consider all of the things that they will need to produce
the product and these are called the factors of production. There are
four major factors of production in an economy: natural resources,
human capital, capital goods, and entrepreneurship.
Natural resources are the raw materials from nature that a company may use to produce its goods
and services such as oil, iron ore, timber, and water. Human capital refers to the resources of the
workers who produce a good or service. It includes people's health, strength, education, motivation,
and skills. Capital goods are the man-made things used in production: buildings, equipment, roads,
dams, tools, and machinery are examples. Finally, entrepreneurship is a special kind of human capital
that represents the characteristics of people who assume the risk of developing new ideas and
starting new businesses to produce goods and provide services. Businesses must decide how much
money they can spend on each factor of production in order to produce their products because they
probably can’t afford unlimited amounts of all four factors.
Background Reading Questions:
1. What are the 3 basic economic questions? Which economic question do the four factors of
production answer?
2. Write your own definitions for the four factors of production:
Natural Resources: ______________________________________________________________
Human Capital: _________________________________________________________________
Capital Goods: _________________________________________________________________
Entrepreneurship: ______________________________________________________________
3. Why can’t businesses afford all of the factors of production all of the time?
