Factors of production

What are the factors of production?

• natural resources available for production

• another term for resources in economics

• what is required in the future for the production of goods and services

• human resources used in the production of goods and services

Answer explanation

A and D are examples of different factors of productions. The wording of the question requires a
more general answer. C is not correct since it is not concerned with current resources in
an economy

The factor of production capital means:

• that it is combined with land and labor to produce goods and services.

• the value of assets owned by the firm.

• the money needed to establish a firm.

• the money provided by shareholders to expand production in the firm.

Answer explanation

A recognises that factors of production are required to produce goods and services in an economy.
B, C and D consider capital in its monetary context; as a factor of production capital has a
wider meaning

Which of the following is the best explanation of how an economist describes an entrepreneur?

• someone who is lucky and makes a lot of money

• someone who succeeds in some but not all business ventures

• someone who is responsible for a firm

• someone who seeks business opportunities and is willing to take risks

Answer explanation

All options could apply to an entrepreneur. D is the ‘best’ one since it relates to the wider function
of an entrepreneur, in particular the willingness to take risks.

Which of these examples is land as a factor of production?

• airline pilot

• airfield

• airplane

• fuel for airplanes

Answer explanation

A and C are labour and capital respectively. Aircraft fuel is not strictly land as it has been
processed by other factors of production.

Specialization can only occur when:

• the price has been agreed upon for the purchase and sale of the product.

• the company has modern production methods.

• the company is more efficient than all others in the production of the product.

• the entrepreneur sees a business opportunity.

Answer explanation

Specialization occurs when a company is more efficient than others in production, allowing it to focus on specific tasks and improve productivity, leading to better quality and lower costs.

Three workers (A, B, and C) work at a shoe factory. The table below shows the output of each worker if they split their time equally among the three stages of the production process. Each worker is now offered to work on a part of the production process where they are specialists. What will be the increase in total shoe production?

Worker A 100 40 40

Worker B 40 100 40

Worker C 40 40 100

• 140 shoes

• 180 shoes

• 360 shoes

• 540 shoes

Answer explanation

Before specialisation, each worker produced 180 shoes, a total of 540 shoes. If each worker
specialises in that part of the production process where they are most efficient, each can produce
3 × 100 or 300 shoes, a total of 900 shoes. The increase in production is therefore 360 shoes.

What is the reason an entrepreneur is willing to take risks?

• to obtain a large bank loan

• to realize a business ambition

• to justify giving up a safe job

• to boost their self-esteem

Answer explanation

All options are acceptable reasons why an entrepreneur is prepared to take risks. The ‘most likely’
one is B since this is why an entrepreneur is prepared to take risks to develop a business.