What Are Factors of Production?

Factors of production are a basic category in economics, including human factors, material factors and their combining factors. Factors of production refer to various social resources required for social production and operation activities, and are the basic factors that must be possessed in maintaining the operation of the national economy and the production and management processes of market entities. Production factors include labor, land, capital, and entrepreneurial talent. With the development of science and technology and the establishment of an intellectual property system, technology and information are also put into production as relatively independent factors. These factors of production are exchanged in the market to form a variety of factors of production prices and their systems.

Factors of production

Factors of production refer to all factors necessary for material production and their environmental conditions. Generally speaking, the factors of production include at least human factors, physical factors and their combined factors,

Research on the impact of the distribution of factors of production on income distribution should follow this principle of economists: "Consumption

Factors of production include labor, capital and land, but for a long time we have only emphasized the role of labor in value creation and wealth production, while the role of other factors of production and their division of national income have either been ignored or valued Insufficient, so only the issue of labor participation in income distribution has been emphasized. We discuss today

I. Characteristics of demand for production factors

Enterprise demand for production factors is caused or derived from consumer demand for consumer goods.

The demand for factors of production has the following characteristics:

1. The demand for production factors is "induced demand".

2. The demand for production factors is not the demand for production factors themselves, but the demand for the use of production factors.

3. The demand for production factors comes from the producerthe enterprise.

4. The purpose of the enterprise's demand for production factors is to produce products, hoping to get benefits from the ground.

Factors determining demand for production factors

The producer's demand for a factor of production is determined by the following factors:

(1) Marginal productivity of production factors. Marginal productivity is the amount of product that can be produced by a certain number of production factors.

(2) The price of the products produced.

(3) The price of the factors of production itself.

(4) The demand for production factors is also affected by technical factors.

(5) The short-term and long-term factors of production factors are different, and the time factor will also affect the factor demand, because the short-term and long-term factor demand elasticity is different.

Third, the demand of individual enterprises for production factors: perfect competition

(I) Demand for single factor input enterprises for production factors

1. Marginal productivity of production factors

There are two representations. One is expressed in physical form, expressed as the marginal output of inputs of production factors. The other is expressed in the form of value, expressed as the value of marginal output.

The value of the marginal output of the factor of production is equal to the price of the product produced by the factor of production times the marginal output of the factor of production, that is:

MP = p · MP (1)

2. Under the condition of perfect competition, the value of marginal output determines the enterprise's demand for factor inputs. The value of the factor's marginal output is equal to the factor's price, that is:

VMP = w (2)

In fact, one can also use the method of deriving the profit function of an enterprise to find the optimal input of the factors. The profit function of the enterprise is:

= p 0 q w L F C (3)

Among them FC is the fixed cost of the enterprise. Find the first derivative of the factor input L with the above profit function and make it equal to 0 to get:

p 0 M P L = w (4)

Changes in demand and demand for production factors

1. The change in factor demand means that the amount of factor demand does not change with the price of the factor itself, but changes with factors other than the price of the factor itself. It moves the position of the entire factor demand curve up and down.

2. The change in the amount of factor demand refers to the change in the amount of factor demand caused by the change in the price of the factor itself, that is, the movement of points on the same factor demand curve under the same circumstances.