Factors of production

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ФАКТОРЫ ПРОИЗВОДСТВА

FACTORS OF PRODUCTION

Выполнил Проверил

магистрант Грузинов О.С. старший преподаватель

подпись____________ Филимончик О.Н.

Гомель 2014



АННОТАЦИЯ

Грузинов Олег Сергеевич

Факторы производства

Ключевые слова: капитал, труд, земля, природные ресурсы, предпринимательство, рабочая сила, продукция, себестоимость продукции, расходы продукции, новые факторы производства, экономисты, прибыльность, капиталовложение, производственный цикл.

Реферат содержит: материал письменного перевода 113000 знаков (11 страниц), перечень приведенной литературы - 12 источников, словарь научных терминов - 314 слов.

Цель работы - провести тематический обзор характеристик каждого фактора производства, проанализировать теории главных экономистов и описать возможные варианты новых факторов производства.

В экономике производство означает создание или добавление полезности. Факторами производства (или производительные входы или ресурсы) являются любые предметы потребления, применяемые для производства товаров и услуг.

Приведены сведения оключевых понятиях факторов производства и о ценовой структуре продукции. Рассмотрено мировоззрение каждой историко-экономической школы по определению самых важных факторов производства. Дана подробная характеристика каждого фактора в данном обзорном реферате.

Особый интерес вызвали исследования в области подходов по выделению нового четвертого фактора производства. Каждый рынок должен быть готов к новшествам и инновациям в сфере торговли, в сфере услуг, в сфере производства, распределения и сбыта. Т.к. идет развитие в каждой отрасли экономики в настоящее время, то это не могло, не отразится и на формировании цены продукции, и на определении факторов производства, от которых она зависит.

АНАТАЦЫЯ

Грузiнаў Алег Сяргеевiч

Фактары вытворчасцi

Ключавыя словы: капітал, праца, зямля, прыродныярэсурсы, прадпрымальніцтва, рабочая сіла, прадукцыя, сабекошт прадукцыі, выдаткі прадукцыі, новыя фактары вытворчасці, эканамісты, прыбытковасць, капіталаўкладанне, вытворчы цыкл.

Реферат змяшчаэ: матэрыял пiсьмовага перакладу 113000друкаваныхзнакаў (на 11 старонках), пералiк перакладзенай лiтаратуры - 12крынiц, слоўнiк навуковых тэрмiнаў - 314слоў.

Мэтапрацы-правесці тэматычны агляд характарыстык кожнага фактару вытворчасці ,прааналізаваць тэорыі галоўных эканамістаў і апісаць магчымыя варыянты новых фактараў вытворчасці.

У эканоміцы вытворчасць азначае стварэнне або даданне карыснасці. Фактарамі вытворчасці (або прадукцыйныя ўваходыа бо рэсурсы )з'яўляюцца любыя прадметы спажывання, якія прымяняюцца для вытворчасці тавараў і паслуг. Прыведзены звесткі аб ключавых паняццях фактараў вытворчасці і аб цэнавай структуры прадукцыі. Разгледжан светапогляд кожнай гісторыка-эканамічнай школы па вызначэнні самых важных фактараў вытворчасці. Дана падрабязная характарыстыка кожнага фактару ў дадзеным аглядным рэфераце.

Асаблівую цікавасць выклікалі даследаванні ў галіне падыходаў па вылучэнню новага чацвёртага фактару вытворчасці. Кожны рынак павінен быць гатовы да навінам і інавацыях у сферы гандлю, у сферы паслуг, у сферы вытворчасці, размеркавання і збыту. Так як ідзе развіццё ў кожнай галіны эканомікі ў цяперашні час, то гэта не магло не адаб'ецца і на фарміраванні кошту прадукцыі, і на вызначэнні фактараў вытворчасці, ад якіхя назалежыць.



ANNOTATION

Gruzinov S. Oleg

Factors of production

Keywords: capital, labour, land, natural resources, entrepreneurship, labour force, production, production cost, production expenses, new factors of production, economists, profitability, investment, production cycle.

Summary includes: the material of translation 113000characters (pages 11), the references - 12 sources, the list of scientific terms - 314 words.

The purpose of work is to conduct a thematic review of the characteristics of each factor of production, to analyze the theories of main economists and to describe the possible variants of new factors of production.

In economics, production means creation or an addition of utility. Factors of production (or productive inputs or resources) are any commodities or services used to produce goods and services.

The abstract provides information about the key concepts of main factors of production and about the price structure of production.The world outlook of each historically created economical school about the most important factors of production. The detailed characteristic is given in that survey paper.

Special interest was the study of approaches to the allocation of the forth new principal factor of production. Each market has to be ready to novelties and innovations in the trade sphere, in a services sector, in the sphere of production, distribution and sale.

As there is a development in each branch of economy nowadays, so it was reflected on the creation of production pricing, and on definition of factors of production on which it depends.



CONTENTS

INTRODUCTION

1 HISTORICAL SCHOOLS AND FACTORS

2 THE MAIN THREE FACTORS OF PRODUCTION

3 THE FOURTH FACTOR OF PRODUCTION

CONCLUSION

REFERENCES

LISTOFTERMS

APPENDIX



INTRODUCTION

In economics, factor of production means input and finished means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function. All factors of production like land, labour, capital and entrepreneur are required in combination at a time to produce a commodity. In economics, production means creation or an addition of utility.Factors of production (or productive inputs orresources) are any commodities or services used to produce goods and services. [6]

Factors of production may also refer specifically to the primary factors, which are stocks including land, labour (the ability to work), and capital goods applied to production. The primary factors facilitate production but neither become part of the product (as with raw materials) nor become significantly transformed by the production process (as with fuel used to power machinery).

Land includes not only the site of production but natural resources above or below the soil. Recent usage has distinguished human capital (the stock of knowledge in the labour force) from labour. [7]

Entrepreneurship is also sometimes considered a factor of production.

Sometimes the overall state of technology is described as a factor of production.

The number and definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of economics.

Means of production refers to physical, non-human inputs used in production--the factories, machines, and tools used to produce wealth -- along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital. They include two broad categories of objects: instruments of labour (tools, factories, infrastructure, etc.) and subjects of labour (natural resources and raw materials). People operate on the subjects of labour, using the instruments of labour, to create a product; or, stated another way, labour acting on the means of production creates a product. When used in the broad sense, the term «means of production» includes the term «means of distribution» which includes stores, banks, and railroads. [2]

The term can be simply and picturesquely described in an agrarian society as the soil and the shovel; in an industrial society, the mines and the factories.

The title of my research work is «study of the problems and make recommendations to promotion new product on the market now JSC Gomelchimtorg». This theme is connected with all factors of production. First of all, the level of passenger tariffs contains the salary railway workers (employees of cash desks, conductors, drivers, repairmen and etc.). So this is such factor of production as labour. The land factor means registration of railway stations, driveways, locomotive depots, railroad offices and so on. [1]



1. HISTORICAL SCHOOLS AND FACTORS

The factors of production are resources that are the building blocks of the economy; they are what people use to produce goods and services. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship. [6]

The first factor of production is land, but this includes any natural resource used to produce goods and services. This includes not just land, but anything that comes from the land. Some common land or natural resources are water, oil, copper, natural gas, coal, and forests. Land resources are the raw materials in the production process. These resources can be renewable, such as forests, or nonrenewable such as oil or natural gas. The income that resource owners earn in return for land resources is called rent. [6]

The second factor of production is labor. Labor is the effort that people contribute to the production of goods and services. Labor resources include the work done by the waiter who brings your food at a local restaurant as well as the engineer who designed the bus that transports you to school. It includes an artist's creation of a painting as well as the work of the pilot flying the airplane overhead. If you have ever been paid for a job, you have contributed labor resources to the production of goods or services. The income earned by labor resources is called wages and is the largest source of income for most people. [5]

The third factor of production is capital. Think of capital as the machinery, tools and buildings humans use to produce goods and services. Some common examples of capital include hammers, forklifts, conveyer belts, computers, and delivery vans. Capital differs based on the worker and the type of work being done. For example, a doctor may use a stethoscope and an examination room to provide medical services. A teacher may use textbooks, desks, and a whiteboard to produce education services. The income earned by owners of capital resources is interest. [5]

The fourth factor of production is entrepreneurship. An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit. The most successful entrepreneurs are innovators who find new ways produce goods and services or who develop new goods and services to bring to market. Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist. Think of the entrepreneurship of Henry Ford or Bill Gates. Entrepreneurs are a vital engine of economic growth helping to build some of the largest firms in the world as well as some of the small businesses in your neighborhood. Entrepreneurs thrive in economies where they have the freedom to start businesses and buy resources freely. The payment to entrepreneurship is profit. [6]

In the interpretation of the currently dominant view of classical economic theory developed by neoclassical economists, the term «factors» did not exist until after the classical period and is not to be found in any of the literature of that time. Differences are most stark when it comes to deciding which factor is the most important. For example, in the Austrian view--often shared by neoclassical and other «free market» economists--the primary factor of production is the time of the entrepreneur, which, when combined with other factors, determines the amount of output of a particular good or service. However, other authors argue that «entrepreneurship» is nothing but a specific kind of labour or human capital and should not be treated separately. [6]

Physiocracy

In French Physiocracy, the main European school of economics before Adam Smith, the productive process is explained as the interaction between participating classes of the population. These classes are therefore the factors of production within physiocracy: capital, entrepreneurship, land, and labour.

· The farmer labours on land (sometimes using «crafts») to produce food, fiber, and the like.

· The artisan labours to produce important capital goods (crafts) to be used by the other economic actors.

· The landlord is only a consumer of food and crafts and produces nothing at all.

· The merchant labours to export food in exchange for foreign imports.

Classical

The classical economics of Adam Smith, David Ricardo, and their followers focuses on physical resources in defining its factors of production, and discusses the distribution of cost and value among these factors. Adam Smith and David Ricardo referred to the «component parts of price» as the costs of using:

· Land or natural resource -- naturally-occurring goods such as water, air, soil, minerals, flora and fauna that are used in the creation of products. The payment for use and the received income of a land owner is rent.

· Labour -- human effort used in production which also includes technical and marketing expertise. The payment for someone else's labour and all income received from one's own labour is wages. Labour can also be classified as the physical and mental contribution of an employee to the production of the good(s).

· The capital stock -- human-made goods (or means of production), which are used in the production of other goods. This component includes machinery, tools, and buildings.

The classical economists also employed the word «capital» in reference to money. Money, however, was not considered to be a factor of production in the sense of capital stock since it is not used to directly produce any good. The return to loaned money or to loaned stock was styled as interest while the return to the actual proprietor of capital stock (tools, etc.) was styled as profit. See also returns.

Marxian

Marx considered the «elementary factors of the labour-process» or «productive forces» to be:

· Labour («work itself»)

· The subject of labour (objects transformed by labour)

· The instruments of labour (or means of labour).

The «subject of labour» refers to natural resources and raw materials, including land. The «instruments of labour» are tools, in the broadest sense. They include factory buildings, infrastructure, and other human-made objects that facilitate labour's production of goods and services.

This view seems similar to the classical perspective described above. But unlike the classical school and many economists today, Marx made a clear distinction between labour actually done and an individual's «labour power» or ability to work. Labour done is often referred to nowadays as «effort» or «labour services». Labour-power might be seen as a stock which can produce a flow of labour.

Labour, not labour power, is the key factor of production for Marx and the basis for Marx's labour theory of value. The hiring of labour power only results in the production of goods or services («use-values») when organized and regulated (often by the «management»). How much labour is actually done depends on the importance of conflict or tensions within the labour process.

Neoclassical economics

Neoclassical economics, one of the branches of mainstream economics, started with the classical factors of production of land, labour, and capital. However, it developed an alternative theory of value and distribution. Many of its practitioners have added various further factors of production.

Further distinctions

Further distinctions from classical and neoclassical microeconomics include the following:

· Capital -- this has many meanings, including the financial capital raised to operate and expand a business. In much of economics, however, "capital" (without any qualification) means goods that can help produce other goods in the future, the result of investment. It refers to machines, roads, factories, schools, infrastructure, and office buildings which humans have produced in order to produce goods and services.

· Fixed capital -- this includes machinery, factories, equipment, new technology, factories, buildings, computers, and other goods that are designed to increase the productive potential of the economy for future years. Nowadays, many consider computer software to be a form of fixed capital and it is counted as such in the National Income and Product Accounts of the United States and other countries. This type of capital does not change due to the production of the good.

· Working capital -- this includes the stocks of finished and semi-finished goods that will be economically consumed in the near future or will be made into a finished consumer good in the near future. These are often called inventories. The phrase «working capital» has also been used to refer to liquid assets (money) needed for immediate expenses linked to the production process (to pay salaries, invoices, taxes, interests...) either way, the amount or nature of this type of capital usually changed during the production process.

· Financial capital -- this is simply the amount of money the initiator of the business has invested in it. «Financial capital» often refers to his or her net worth tied up in the business (assets minus liabilities) but the phrase often includes money borrowed from others.

· Technological progress -- for over a century, economists have known that capital and labour do not account for all of economic growth. This is reflected in total factor productivity and the Solow residual used in economic models called production functions that account for the contributions of capital and labour, yet have some unexplained contributor which is commonly called technological progress. Ayres and War (2009) present time series of the efficiency of primary energy (exergy) conversion into useful work for the US, UK, Austria and Japan revealing dramatic improvements in model accuracy. With useful work as a factor of production they are able to reproduce historical rates of economic growth with considerable precision and without recourse to exogenous and unexplained technological progress, thereby overcoming the major flaw of the Solow Theory of economic growth. [4]

factor production economist marx



2. THE MAIN THREE FACTORS OF PRODUCTION

Factors of production arc resources used by firms as inputs for a good or service to be produced. Factors of production are as follows: capital, labour, and natural resources. In economic theory, the term «capital» refers to goods and money used to produce more goods and money. Classifications of capital vary with the purpose of the classification. The most general distinction is the one made between physical, financial, and human capital.[1]

Physical capital is land, buildings, equipment, raw materials; bonds, stocks, available bank balances are included in the financial capital. They both make great contribution to production.[2]

To group capital into fixed capital and circulating capital is common practice. The former refers to means of production such as land, buildings, machinery and various equipment. They are durable, that is, they participate in the production process over several years. Circulating capital includes both ion-renewable goods, such as raw materials and fuel, and the funds required to pay wages and other claims against the enterprise. Non-renewable goods TC used up in one production cycle and their value is fully transferred to the final product.[1]

Human capital is knowledge that contributes «know-how» to production. It is increased by research and disseminated through education. Investment in human capital results in new, technically improved, products and production processes which improve economic efficiency. Like physical capital, human capital is important enough to be an indicator of economic development of a nation.

It is common, in economics, to understand labour as an effort needed to satisfy human needs. It is one of the three leading elements of production. Labour has a variety of functions: production of raw materials, manufacturing of final products, transferring things from one place to another, management of production, and services like the ones rendered by physicians and teachers.

One can classify labour into productive and unproductive. The former produces physical objects having utility. The latter is useful but does not produce material wealth. Labour of the musician is an example.[6]

Unlike other factors of production, for example capital, once workers are employed, their efficiency can vary greatly with organization of work and their motivation.

Demand for labour is influenced by the demand for goods produced by workers, the proportion of wages in total production costs, etc. The supply of labour depends upon the size of population, geographic mobility, skills, education level (human capital), etc. Workers supply labour either individually or through trade unions. If demand for and supply of labour are not in equilibrium, there is unemployment. The rate of unemployment is a percentage of the total labour force without a job. It is desirable for an economy to have the lowest possible unemployment rate and to achieve higher employment as neither full use of resources nor maximum level of output can be achieved in an economy having unemployment.

Factors of production are combined together in different proportions in order to produce output. It is assumed in economics that one should choose the combination of factors which minimizes the cost of production and increases profits.

Economists consider natural resources to be the third factor of production. They are a contribution to productive activity made by land (for example, a factory site or farm location), raw materials such as iron ore, timber, oil, water for crops and power production, forests and animals.[5]

Some natural resources, wheat, for example, are renewable; others such as iron ore are non-renewable and will eventually be used up. Economists know reduced supplies of non-renewable resources to result in their higher prices, which provide an incentive to look for natural or synthetic substitutes for them. The supply of land, an essential natural resource, is limited and it cannot be easily increased to meet an increase in demand except in certain cases. For example, the Dutch have been able to reclaim from the sea some areas of low-lying land.

Another essential characteristic of land is that it is durable, that is, land is not used up in the production process, although it may be depleted by use.

Land is, in some respects, close to physical capital, though the former is supplied by nature and man produces the latter. Nevertheless, applying labour to kill weeds or fertilizer to improve the soil, farmers can «produce» better land and raise its price.

Price of or income from land, as well as from other natural resources, is called rent. Land itself has no cost of production, so rent depends on the degree of scarcity and on the demand for it.[4]

The purposes for which land is used are due to its characteristics. Land can be used for housing or offices, for mining, or for building roads. Besides, it contributes to the production of crops, providing an environment that supplies water, air, and nutrients for plant growth.

Land as a unique agricultural resource poses management problems for the farmer. In the first place, the farmer has to make a choice between buying and leasing it. The advantages and disadvantages depend on the farmer's financial position, on the availability of land for lease and purchase and some other factors.

Because purchasing land usually requires a larger capital, farmers with limited capital lease land and use their capital for machinery and other resources.

Economists consider a satisfactory lease to be the one that is profitable both for the landowner and for the tenant. A fair lease compensates both parties in proportion to their contributions to the farm business.

Other management problems may arise due to differences in land profitability in various farming branches and other industries. Economists know different crops and classes of animals to vary in profitability. The farmer has to study thoroughly the conditions on his farm to make a correct choice between alternative uses.

Land was sometimes defined in classical and neoclassical economics as the «original and indestructible powers of the soil». Georgists hold that this implies a perfectly inelastic supply curve (i.e., zero elasticity), suggesting that a land value tax that recovers the rent of land for public purposes would not affect the opportunity cost of using land, but would instead only decrease the value of owning it. This view is supported by evidence that although land can come on and off the market, market inventories of land show if anything an inverse relationship to price (i.e., negative elasticity). [3]

Land, particularly geographic locations and mineral deposits, has historically been the cause of much conflict and dispute; land reform programs, which are designed to redistribute possession and/or use of geographic land, are often the cause of much controversy, and conflicts over the economic rent of mineral deposits have contributed to many civil wars, particularly in Africa. [4]

Although the total supply of land is limited, its allocation between industries is not. If a government wants to stimulate, for example, either housing or afforestation, it offers a subsidy raising the rent received by owners of housing land or forests. This may create incentives for farmers to transfer land from farming to other industries.[4]

2.1 CRITICISM OF THE FREE FACTORS OF PRODUCTION

Several economists have criticisms for the above factors of production economist Benham has objected to a broader meaning of land as a factor of production. As per him, it is convenient to consider only land as factor of production, rather than such elements as sunshine, climate etc. which does not enter directly into costs. Likewise, it is incorrect to group together the services of an untalented worker with that of professionals. Yet again, there is tiny tip in syndicating mutually as capital, as assorted as canals, diesel, seeds and machinery. It would consequently, be more appropriate to chunk collectively all standardized units, whether hectares of land, workers or capital goods and to regard each group as an individual factor of production. This method gives us a hefty integer of factors of production and each group is regarded as a separate factor. [7]

Over and again, the distinction amidst land, labour and capital are not apparent. To take land and capital, it is said that land is a gift of nature whose supply cannot be amplified while capital is human made whose supply is amendable. This is not correct for the reason that the supply of land can also be greater than before by cleaning it, draining and irrigating it and fertilizing it by the pains of human and capital. The supply of land does not consign to its area alone, but to its productivity. [3]

We might regard each unit of a factor as discrete from other units of that factor, but one factor can be substituted for some other factor. For instance, land can be used intensively by employing more labour or more capital in the form of fertilizers, better seeds and superior techniques. By doing so, we substitute labour or capital for land. Likewise labour can be substituted for capital and capital for labour in a factor. In the former case, labour intensive techniques are used. The level of swap of one factor for another will, nevertheless depend on the most competent scheme of production to be used relatively to the cost of the factor to be substituted. [9]

Moreover, we find that land, labour and capital frequently get mingled into one another and it is tricky to specify the involvement of each individually. For example, when land is vacant canals are dug and fences are erected, the efficiency of land enhances. But all these development on land are feasible by making capital investments and through labour. In such a condition, it is feasible to stipulate the involvement of land, labour and capital escalating efficiency. Likewise, the sum of money spent on cultivating and exercising workers is integrated under capital. So when such workers produce articles by functioning machines in a factory, they put in their labour as well as ability by using raw materials which are also the product of labour and machines used on land. Thus it is hard to unravel the contribution of land, labour and capital in such cases. The complexity begins as to whether the contribution of land, labour and capital should be taken as such, or of their services. If the community is to plan for the prospect or find out the production possibilities open to it, then the contribution of the factors of production should be measured. Keeping the outlook in view, land may be put to more fruitful uses, labour may be trained for diverse occupations requiring higher skills and capital may be used for producing more roundabout means of production and machinery. Thus «the central economic problem for any community is how to make the best use of its labour and other resources and for this purpose the community must consider the various alternatives. It must consider what the men and the land and the capital might contribute towards output if they were used in different ways and not merely what in fact they are contributing now».[3]

Finally, it is habitual not to treat organization as discrete from labour. This is ambiguous and misjudges the role of the entrepreneur as a factor of production. As a substance of statement, labour and entrepreneur are quite dissimilar from each other. An entrepreneur is a man of special managerial aptitude who controls, organizes and manages the entire business of a firm. It is he who utilizes all types of workers and puts them at the places where they are the most appropriate by quality of their education and training. [8]

2.2 SIGNIFICANSE OF THE FREE FACTORS OF PRODUCTION

§ The concept of the factor of production is of great significance in modern economic study. It is used in the theory of production in which the a range of combinations of factors of production help in generating output when a firm functions under rising or declining costs in the short-run and when the proceeds to scale boosts or shrinks in the long run. Moreover, we can also know how the least cost combination of factors can be attained by a firm.

§ The theory of cost of production also depends upon the combination of factors engaged in business and the prices that are paid to them. From the point of view of the theory of costs of production, factors of production are divided as fixed factors are variable factors.

§ Fixed factors are those whose costs do not vary with the variation in output, such as machinery, tube well etc. Variable factors are those whose quantities and costs vary with the variation in output. Larger outputs entail larger quantities of labour, raw materials power etc. So long as a firm covers the costs of production of the variable factors it employs, it will persist to produce even if it fails to cover the costs of production of the hired factors and sustains loss. But this is only feasible in the short-run; in the long-run it must cover the costs of production of both the fixed and variable factors. Thus the distinction amidst fixed and variable factors is of much value for the theory of the firm.

§ Finally the concept of factor of production is used in elucidating the theory of factor-pricing. For this idea, factors of production are divided into specific and non-specific. A factor of production which is specific in use earns a higher reward than a non-specific factor. This also solves the problem of distribution of earnings to the various resource owners. [10]



3. THE FOURTH FACTOR OF PRODUCTION

Some economists also include entrepreneurship as a factor of production. Like labour, entrepreneurship is a human input factor but it refers to more than just work; it refers to the creativity and initiative needed to start a business, develop new goods and services, or improve on the development and distribution of existing products. [12]

Consider entrepreneurship as a factor of production, leaving debate aside. In markets, entrepreneurs combine the other factors of production, land, labour, and capital in order to make a profit. Often these entrepreneurs are seen as innovators, developing new ways to produce and new products. In a planned economy, central planners decide how land, labour, and capital should be used to provide for maximum benefit for all citizens. Of course, just as with market entrepreneurs, the benefits may mostly accrue to the entrepreneurs themselves. [11]

The word has been used in other ways. The sociologist C. Wright Mills refers to «new entrepreneurs» who work within and between corporate and government bureaucracies in new and different ways. Others (such as those practicing public choice theory) refer to «political entrepreneurs», i.e., politicians and other actors.

Much controversy rages about the benefits produced by entrepreneurship. But the real issue is about how well institutions they operate in (markets, planning, bureaucracies, and government) serve the public. This concerns such issues as the relative importance of failure and government failure. [8]

Many definitions of entrepreneurship can be found in the literature describing business processes. The earliest definition of entrepreneurship, dating from the eighteenth century, used it as an economic term describing the process of bearing the risk of buying at certain prices and selling at uncertain prices. Other, later commentators broadened the definition to include the concept of bringing together the factors of production. This definition led others to question whether there was any unique entrepreneurial function or whether it was simply a form of management. Early this century, the concept of innovation was added to the definition of entrepreneur-ship. This innovation could be process innovation, market innovation, product innovation, factor innovation, and even organisational innovation. Later definitions described entrepreneurship as involving the creation of new enterprises and that the entrepreneur is the founder. [11]

Nowdays there is no standart definition of entrepreneur in economic theory, but are identified by three possible elements of the entrepreneural function:

1) The organisation of production

2)Risk

3)Inovation[11]

The entrepreneur is the factor of production which brings together the other factors in the production process. Land and capital are inert objects. Entrepreneur buys land, hires labour and organizes all three factors to produce goods and services for sale, so is seen as the key to production in economy. It could be argued that if there were no entrepreneurs, there would be no production.Production is a risky process. In many industries, land, labour and capital have to be purchased before there is any certainty that the finished product will be sold. For instance, a car manufacturer is likely to make cars without there being any firm orders for their sale. If it makes too many cars, they will have to be stockpiled for sale at a later date. Too big a stockpile and too few orders could result in the bankruptcy of the firm. So firms face uncertainties and have to take risks. Some risks are quantifiable and can be insured against. A firm can insure itself against the risk of fire damage or theft. However, other risks such as whether a new production technique will lead to a reduction in costs, are unquantifiable and therefore cannot be insured against. [12]

Entrepreneurs are those who take unquantifiable risks and suffer the consequences if they get it wrong. Entrepreneur is someone who innovates within an organization. New products are being launched all the time but evidence suggest that only a few will be successful. New productin techniques are also being constantly pioneered with varying degrees of success. [11]

a) The most likely classified as entrepreneurs are owner managers of small firms because they combine all these three entrepreneurial functions. He organize production because he is a manager of the company. He takes risks because he has put money into the firm to start it and is producing innovative products which could well fail. This person is likely to have sufficient capital to be able to finance the setting up to the firm, have total control over the organization of production and be exposed to considerable risk if the enterprise fails.

b) Managers, if they take risks on behalf of their companies and if they are responsible for innovation. A manager of a company may have no shares in the company for which he works, so he does not risk own capital. He takes decisions which involves an uncertain outcome. For example if a firm start to produce a new flavour of yoghurt. The flavour might be very successful or not, so the outcome of a decision is uncertain. Managers of large companies can be as entrepreneurial as owner-managers of small companies if they are responsible for pushing their companies into new areas. If managers work together as a team and innovate or take risks, then the group is entrepreneurial.

c) Shareholders because risk their capital. They are backing change and may give advice to the person setting up the company. If the company fails, shareholders lose their money. On the other hand, they are unlikely to be involved in organizing production or innovation in the firm. So some economists argue that capitalists are in some senses entrepreneurs, others disagree. [11]

Profit is the revenue left over after the other factors of production have been paid. If the entrepreneur is successful, there will be a large residue after wages, interest and rents have been paid. If the entrepreneur is unsuccessful, profits will be negative and the firm could go bankrupt. But not all profit is the reward for entrepreneurship. Only abnormal or pure profit can be seen as the payment which entrepreneurs receive. In normal profit is opportunity cost of factors such as labour and capital which receive no money payment for their use.

Welfare - practical or financial help that is provided, often by the government, for people. The role of entrepreneurship and an entrepreneurial culture in economic and social development has often been underestimated. Over the years, however, it has become increasingly apparent that entrepreneurship does indeed contribute to economic. A number of arguments have been put forward as to why entrepreneurs play such an important role in the economy:

Innovation: Without innovation, the economy would stagnate. There would be no improvements in living standards. Innovation is therefore vital if economic welfare is to increase. Job creation: successful entrepreneurs create jobs. Also small firms can help ease the unemployment problems.

Wealth creation: Entrepreneurs create wealth by their activities. The small firms of today will become the large successful firms tomorrow. But innovation can lead to failure as well as success. For example in UK and USA, small firms entrepreneurs has been seen as a folk hero, have had lower economic growth rates than economies such as Japan and Germany where greater stress is placed on team work and co-operation.

Entrepreneur is the owner manager of a small company. So government can best support the creation of an entreprise culture by measures which will support the creation and expansion of small firms in the economy. Economic theory, however, need have nothing to do with small firms. Both innovation and risk taking can be as much if not more the concern of large firms as small firms.

In recent years, there has been a move towards paying managers by results. Some managing directors, for instance, are paid a basic salary but can earn far more if their company achieves a ange of objectives. These include increases in sales, increases in profits, increases in the share price of the company or reductions in the form of cash or shares in the company. The idea is to make managers who are employees of the firm accept more risk. If the firm does well, the managers will do well. If the firm does badly, so too do the managers.



CONCLUSION

Land, labour, capital, and entrepreneurship: these are four generally recognized factors of production. Of course, in a literal sense anything contributing to the productive process is a factor of production. However, economists seek to classify all inputs into a few broad categories, so standard usage refers to the categories themselves as factors. Before the twentieth century, only three factors making up the classical triad were recognized: land, labour, and capital. Entrepreneurship is a fairly recent addition. [1]

The factor concept is used to construct models illustrating general features of the economic process without getting caught up in inessential details. These include models purporting to explain growth, value, choice of production method, income distribution, and social classes. A major conceptual application is in the theory of production functions. One intuitive basis for the classification of the factors of production is the manner of payment for their services: rent for land, wages for labour, interest for capital, and profit for entrepreneurship. [2]

The myriad of possible inputs are usually grouped into six categories. These factors are:

* Raw materials;

* Machinery;

* Labour services;

* Capital goods;

* Land;

* Entrepreneur. [6]

In the «long run», all of these factors of production can be adjusted by management. The «short run», however, is defined as a period in which at least one of the factors of production is fixed. A fixed factor of production is one whose quantity cannot readily be changed. Examples include major pieces of equipment, suitable factory space, and key managerial personnel. [10]

A variable factor of production is one whose usage rate can be changed easily. Examples include electrical power consumption, transportation services, and most raw material inputs. In the short run, a firm's «scale of operations» determines the maximum number of outputs that can be produced. In the «long run», there are no scale limitations. [3]

So nowadays we can't mention only four main factors of production. To work effectively is to include and not to forget about each item of expenditure. And after the calculation of the products' expenses we will get the right prime costs.



REFERENCES

1. Paul A. Samuelson and William D. Nordhaus. Economics, 18th ed., //«Factors of production», «Capital»,«Human capital», and «Land»//2004// under Glossary of Terms//

2. Sullivan, Arthur; Steven M. Sheffrin . Economics: Principles in action. //2003//Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 4. ISBN 0-13-063085

3. Parkin, Michael and Esquivel, Gerardo, Macroeconomнa, Addison Wesley, 5ed //1999//, p. 160.

4. Milton Friedman //2007 //, Price Theory, pp. 201-02.

5. Adam Smith , The Wealth of Nations, // 1776 // B.I, Ch.6, Of the Component Parts of the Price of Commodities in paragraph I.6.9.

6. «DasKapital», chapter 7, section 1.

7. Robert U. Ayres and Benjamin Warr, The Economic Growth Engine: How useful work creates material prosperity, // 2009 // ISBN 978-1848441828

8. «White Collar: The American Middle Classes» // 1956 // Oxford: Galaxy Books, pp. 94-100.

9. Neva Goodwin, Julie A. Nelson, Frank Ackerman, and Thomas Weisskopf, // 2005 // «Microeconomics in Context», p. 124

10. Joel Sobel. Can We Trust Social Capital? // 2002 //Journal of Economic Literature. 40(1) March, pp. 139-54.

11. R. Kьmmel: The Productive Power of Energy and its Taxation, // 2007 // 4th European Congress Economics and Management of Energy in Industry, Porto, Portugal, 27.-30. Nov.

12. R. Stresing, D. Lindenberger, R. Kьmmel: Cointegration of Output, Capital, Labour, and Energy, European Physical Journal B, Vol 66, No 2, Nov. //2008, // 279-287.



LIST OF TERMS

a number of a variety of (factors) account actual actually additional advantage alongside alternative amount area as follows assumption at a certain level at high/low prices availability available barter budget budget constraint business buyer capital capital stock choice claims against command economy commodity complement good condition constant consumer consumer demand consumption contribute (to smth) contribution convenient corresponding cost crop currency decision decrease (in smth) deferred payment degree demand demand for smth disadvantage disincentive durable durable goods durables economic economical economics economist economy efficiency efficiency of labour efficient employed employed workers employment enterprise environment equilibrium equilibrium price equipment essential exception excess supply exchange exchange rate expenditure expenses expensive farming fertilizer final product finally financial capital fixed capital following for this purpose free market economy fuel good government government intervention government regulation housing human capital importance improvement in exchange for smth in particular in terms of in terms of money incentive income increase (in smth) inefficiency inefficient inferior good influence input input price intervention investment (in smth) iron ore is common practice job labour labour force lease level loan machinery management manager manufacturer manufacturing marginal costs marginal revenue marginal utility market market demand maximization maximum means means of production medium medium of exchange mining mixed economy natural natural resources nature non-renewable non-renewable resources normal good nowadays number oil opportunity costs ore own owner particular per capita per head physical capital planning population price price for/of a good private producer production production cost production costs production cycle production process profit profitability profitable provided that purchase purpose quantity rapid raw raw material(s) reduction (in smth) regulation relationship renewable rent require (smth) required requirement resource(s) restriction result in (smth) revenue seller service shortage size society soil store store of value substitute (for smth) substitute good supply surplus swap technology temporary tenant the exchange rate of rouble against US dollar the same goes for thoroughly to a great degree to accept to affect (smth) to allocate (smth to/in smth, smb) to apply to assume to be at a disadvantage to be in high demand to be included in smth to be of importance to buy to choose to consume to cost to decrease to defer to demand (smth) to depend (on, upon) to distinguish (between things) to distinguish (smth from smth) to earn to economize to exchange (smth for smth) to fall to follow to get/have an advantage over/of smb to impose (on, upon) to improve to include (smth in smth) to increase to influence (smth) to keep an account to lease to lease (out) to look for (smth) to maintain to manufacture to make a contribution to science to make a decision to make a swap to maximize to meet to meet the demand to meet the requirement to obtain to offer (smth to smb) to own to pose problems to prefer (smth to smth) to produce to provide to provide industry with resources to provide resources for/to industry to purchase to quote to raise to run (smth) to receive to reduce to rely (on smb, smth) to repay to rise to sell to supply to supply a factory with raw materials to supply smb with smth to supply smth to smb to swap (smth for smth) to trade (in smth with smb) to trade (smth for smth) to use to use up to vary to vary from … to … to vary in to vary with to waste total trade trade union transfer under good/bad condition(s) unemployment unemployment rate unit unit of account use utility value variety various wage(s) wasteful with the exception of this bank

некоторое количество, ряд ряд, множество (факторов) расчет, подсчет; счет фактический фактически, на самом деле дополнительный, добавочный преимущество; превосходство на ряду с, вместе с альтернативный; другой количество; величина; сумма; объем площадь, пространство, участок, зона как следует ниже; следующий предположение, допущение на определенном уровне по высоким/низким ценам наличие наличный, имеющийся в наличии бартер бюджет бюджетное ограничение предприятие, фирма; бизнес покупатель капитал основной капитал выбор, отбор требования против нерыночная экономика товар; продукт, предмет потребления товар-дополнение состояние; обстоятельства постоянный; непрерывный потребитель потребительский спрос потребление способствует вклад удобный соответственный; соответствующий стоимость; расходы, издержки сельскохозяйственное растение валюта решение уменьшение, понижение, снижение отложенный, отсроченный платеж ступень; степень спрос, требование спрос на что-либо недостаток; невыгодное положение снижение побуждений (стремлений) длительного пользования товары длительного пользования товары длительного пользования экономический; рентабельный экономичный; бережливый экономическая наука; экономика экономист хозяйство, экономика эффективность; продуктивность производительность труда эффективный, действенный имеющий работу занятые рабочие работа; занятость предприятие окружающая среда равновесие равновесная цена оборудование обязательный, необходимый исключение избыточная поставка обмен обменный курс расходы затраты, издержки дорогой занятие сельским хозяйством удобрение конечный продукт в конце концов, в заключение финансовый капитал основные средства следующий; нижеперечисленный с этой целью свободная рыночная экономика топливо, горючее товар, изделие правительство государственное регулирование государственное регулирование жилищное строительство человеческий капитал важность, значение усовершенствование в обмен на что-либо в особенности, в частности в смысле; в отношении; в переводе на в денежном выражении стимул доходы, поступления, прибыль увеличение, рост, прирост неэффективность неэффективный товар низкого качества влияние вложение, затраты, инвестиции цена ресурсов вмешательство капиталовложение; инвестиция железная руда в обычной практике работа, место работы труд рабочая сила аренда, наем; сдача в наем уровень заем, ссуда аппарат, машинное оборудование управление управляющий; директор изготовитель; поставщик производство предельные, маржинальные издержки

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