Question 1

What are the four factors of production and what are the remunerations to each of these called?

Answer

The four factors of production are:

Land – It denotes the natural resources like air, water, soil, etc. The payment that is paid by the firms to acquire these services is called rent.
Labour – It refers to the physical and mental effort required to do a work. For example, engineer, manager, worker, etc. The payment made to the labour in exchange of his/her services are called wages.
Capital – It refers to the monetary investments and physical and tangible investments like machinery, buildings, technology, tools, etc. which assists in the production process. The payment received in exchange of these services is called interest.
Entrepreneur – It refers to the individual who undertakes the risk to organise the production process. Entrepreneurs are the risk takers and often are the innovators of new techniques. They receive profit in exchange for their entrepreneurship. The remunerations paid to the factors of productions are called factor payments or factor incomes. These are the aggregation of rent, wage, interest and profit.

Popular Questions of Class 12 Macro Economics