What are the factors of production?

In economics, the  factors of production are the set of essential elements for a productive process  , be it a good or a service. The theory of the factors of production is the basis of economic studies.

Traditionally, economists have identified three essential factors for the production of a good or service: land, labor, and capital. Later, new economic theories added elements to this division.

What are the factors of production?


The earth element includes not only areas of cultivation or construction, but all the  natural resources  that are above and below. Therefore, the concept encompasses forests, mines, water, air and energy.


The work factor includes both the hours of work used in production and the knowledge, technique and skills of those involved in the process. This item is also often called  human resources  .


The capital element refers to the set of material elements that support production, such as industrial machines, computer and telecommunications equipment, means of transport and facilities, among others. In short, capital equals  producer goods  .

Other factors

Over the years, economists have added new factors to the classic division that they have come to consider essential in a productive process. However, its adoption is not consensual and depends on the analysis model used.

One of the factors of production added to the classic division is  entrepreneurship  , sometimes called  entrepreneurship  . This factor refers to the organization of production, that is, the action of gathering and combining the other factors of production, assuming the risks of the process.

Another factor added to the classic division is  technological capacity  . It covers three categories: invention, innovation and operation.

Invention is the capacity for research and development. Innovation is the ability to apply technology in the production process. Operation refers to the ability to operate production activities.

Characteristics of the factors of production.

The  main characteristic of the factors of production is that they are scarce  , that is, finite. The labor factor, for example, depends on the size of the economically active population (EAP) in a given region. The same logic applies to natural resources and producer goods.

It is the scarcity of factors of production that limits the ability to fully satisfy consumer wants, which economic theory classifies as infinite.

This scarcity, indicated as the main reason for the development of economic studies, increases the importance of decision-making by society on how the available factors should be used. That is, about what should and should not occur.

Furthermore, a factor can also be characterized by taking into account the role it plays within the production process and its relationship to it. The three main characteristics of the factors of production are versatility, substitutability, and complementarity.

Adaptability or versatility.

It refers to the ability of a factor of production to adapt to new situations, such as an increase in production or a change in the goods that are produced. That is, a versatile factor is one that can be applied in more than one way. An example of a factor of production that has this characteristic is energy.


It refers to the ability to replace, at least partially, labor with capital and vice versa. It is the process that occurs, for example, with the automation of industrial plants, in which the number of workers is reduced with the adoption of new machines.


It is the characteristic of situations in which it is only possible to produce by combining labor with capital. In other words, in this case, these two factors are always complementary.

An example of a good that has this characteristic is a truck. In order for it to participate in the production process, it must necessarily be driven by a driver.