Download factors of production note

6 Factors of Production
1.
Natural Resources
 Everything in the world is made from six types of natural resources
a) Agriculture – things that are grown and raised, e.g., potatoes, wheat, fruit, sugar cane, chicken, etc.
b) Mining – minerals taken from the earth, e.g., copper ore, bauxite, sodium, stones, etc.
c) Fishing and trapping – fish and animals, e.g., seafood, wild ducks, venison, seals, etc.
d) Water
e) Fuel and energy – hydroelectric power, oil, gas, etc.
f) Logging and Forestry – timber used to make lumber, pulp, paper, cardboard, etc.
 These industries are known as primary industries because everything starts out with them
 These industries are also often called extractive industries since they often involve taking something out of
the earth or water
 Natural Resources used to make toast: wheat to make flour, bauxite to make aluminum, energy to power
toaster, oil to make plastic, water to make bread, etc.
2.
Raw Materials
 Any goods used in the manufacturing of another product
 Most goods we buy started as natural resources that were converted into another product
 We rarely buy natural resources – exceptions fresh vegetables, fruit, fish
 Raw materials in toast production: flour, sugar to make bread; bread to make toast

Two types of Raw Materials
o Ingredients: raw materials that go into a product, e.g., flour, sugar, water, milk into bread
o Most ingredients have been converted, processed, into another ingredient, e.g, wheat into flour, sugar
cane into sugar
o Supplies: used to run the business but do not go directly into the product, e.g., cleaners, paper, pens,
oil for equipment, etc.
3.
Labour
 All physical and mental work used to produce goods and services
 E.g., physical – construction worker; mental – architect
 Labour is very expensive and businesses look for ways to reduce labour costs
 Automation – using machines to do work previously done by humans
 Consolidation – closing smaller facilities, manufacturing out of a few large facilities then shipping to where
the product is sold, e.g., Tim Horton’s – stores do not bake from scratch anymore, that is done in Brantford
for all of Tim Horton’s in Canada
 Outsourcing – hiring another company to perform the task; e.g., companies may send parts to another
company to package using high speed automated equipment that they do not want to purchase themselves;
call centres located in India
 Outsourcing takes away jobs but results in cheaper labour for companies
4.
Capital
 Money invested in a business
 Money is used to buy things the business needs
 Liquid capital: capital that can be converted into something else very quickly, e.g., cash into a truck
 Non-liquid capital: things a business owns that are used in the business and cannot be converted into
liquid capital; also called capital goods: equipment, buildings, etc.
 Intellectual property: ideas or talent of the workforce, e.g, professional athletes, singers, artists, authors,
etc. that sign contracts
5.
Information
 To compete, businesses need information – about customers, technology, competition, political conditions,
sources of supply, etc.
 Information has become a commodity (a product for sale)
 Some companies provide information on the internet for free but charge companies to advertise on their site
 Frasers is a company that list industrial businesses
 RBC or BMO provide investment information
 Marketing research companies provide information about trends, products, consumers, advertising
methods, etc.
6.
Management
 People who control the factors of production and decide how to run the business, how to share profits, what
to buy, what to make, etc.