Four Factors of Production
Background Reading:
Let’s remember the three basic economic questions that all economic systems must answer:
What to produce?
How to produce?
For whom to produce?
After a business decides what to make, they have to decide
how to make it. They have to consider all of the things that
they will need to produce
the product and these are called the factors of production.
There are four major factors of production in an economy:
natural resources, human capital, capital goods, and
entrepreneurship.
Natural resources are the raw materials from nature that a company may use to
produce its goods and services such as oil, iron ore, timber, and water. Human capital
refers to the resources of the workers who produce a good or service. It includes
people's health, strength, education, motivation, and skills. Capital goods are the man-
made things used in production: buildings, equipment, roads, dams, tools, and
machinery are examples. Finally, entrepreneurship is a special kind of human capital
that represents the characteristics of people who assume the risk of developing new
ideas and starting new businesses to produce goods and provide services. Businesses
must decide how much money they can spend on each factor of production in order to
produce their products because they probably can’t afford unlimited amounts of all four
factors.
Background Reading Questions:
1. What are the 3 basic economic questions? Which economic question do the four factors
of production answer?
2. Write your own definitions for the four factors of production:
Natural Resources: ______________________________________________________________
Human Capital: _________________________________________________________________
Capital Goods: _________________________________________________________________
Entrepreneurship: ______________________________________________________________
3. Why can’t businesses afford all of the factors of production all of the time?
“Factors of Production” Sorting:
The factors of production refer to any resources needed to provide a good or service to
consumers in an economy. Below you will find some of the factors of production that go into
providing the service of education in our county. Read each item and decide which of the four
factors of production it would be classified as:
NR = Natural Resources
HC = Human Capital
CG = Capital Goods
E= Entrepreneurship
11. Desks ________
1. School ________
12. Dry Erase Boards _________
2. Tax Money ________ 13
. Buses _________
3. Books _________ 14 Lake where the rowing team
. practices
4. Cafeteria food ________ _________
5. Media Center ________ 15
. Gas __________
6. Teachers __________ 16
. Custodians __________
7. Principal __________ 17
. Students ____________
8. Paper _____________ 18
. Superintendent _________
9. Winner of the science fair __________ 19
10 . Computers __________
. Athletic Fields ___________ 20
. Asst. Principals _______
“Factors of Production” Multiple Choice Practice:
Choose the multiple choice answer that is correct.
1. A new office building would be an example of which factor of production?
a. Entrepreneurship
b. Capital Goods
c. Natural Resources
d. Human Capital
2. A trained automobile mechanic would be an example of:
a. Capital Goods
b. Entrepreneurship
c. Human Capital
d. Natural Resources
3. Ray Kroc, the founder of the fast-food chain McDonald’s, would be an example of this
factor of production:
a. Capital Goods
b. Human Capital
c. Entrepreneurship
d. Natural Resources
4. A deposit of coal is an example of which factor of production?
a. Human Capital
b. Entrepreneurship
c. Capital Goods
d. Natural Resources
5. A loaf of bread used to make bread pudding at a restaurant is an example of:
a. Human Capital
b. Natural Resources
c. Capital Goods
d. Entrepreneurship
“Factors of Production” Fairy Tales:
For this activity, you will be assigned a fairy tale to read that has something to do with
the factors of production. You will answer the questions for your fairy tale and fill out
the Factors of Production chart. You will then teach about your fairy tale to another
student.
The Three Little Pigs
1. What was the product being produced by the pigs?
2. Was there a difference in how the product was produced for each pig? If so, what?
Production Resource Chart
Entrepreneurshi
Product? Natural Human Capital p
Resources Capital Goods
Pig #1
Pig #2
Pig #3
Big Bad
Wolf
Jack and the Beanstalk
1. What was the product that Jack had at the beginning of the tale? What factor of production did
he receive after his trade?
2. Why was Jack able to become so rich by the end of the tale?
Production Resource Chart
Entrepreneurshi
Product? Natural Human Capital p
Resources Capital Goods
Mother
Jack
Giant
Giant’s Wife
TOTD: Write your own “Factors of Production” Fairy Tale!
Use the space below to plot out your fairy tale.
Characte Product Natural Human Capita Entrepreneurship
r ? Resourc Capital l
es Good
s
Name: Date: Per:
“Factors of Production” Fairy Tale Final Draft
Write out your fairy tale in the space below. You should draw an image in the boxes that
highlights TWO factors of production in your story. This MUST be 10-12 sentences but it
can be more.
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