Updated: Aug 20, 2021

These are the ‘agents’ or factors of production used in an economy or firm to produce and distribute goods and services. They are conventionally classified into land, labour and capital, each of these being a generic name for a possibly large set of productive services. The category ‘land’ includes natural resources, properties of soil and waterways, or simply its ability to build upon. Labour is the term which summarizes the services of both manual and non-manual labour, the service yielded by a broker in bringing two parties together as well as those yielded by a machine operator or car mechanic. Finally the category ‘capital’ refers to the service provided by machinery, buildings, tools and other productive instruments which are goods made to produce other goods, which considerably increase the productivity of land and labour, and which are only obtained by sacrificing current consumtion possibilities. In certain problems the distinctions between categories may not be rigidly applied e.g. a highly skilled worker may be better regarded as a capital good than as a unit of labour.

The most important characteristic of resources is that they are relatively scarce, that is, relative to the total flow of goods and services which society would like to produce with them. This relative scarcity corrrespondingly creates a need for allocation, and the study of the way in which capitalist economies carry out this process of resource allocation has long been the main preoccupation of microeconomics.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.