The aim of production is to produce the goods and services that we want. There are four requirements for the production of goods and services. Land, Labor, Physical Capital, and Human Capital. Let us learn in detail about the requirements for the production of goods and services.
- The first requirement is the land, and other natural resources such as water, forests, minerals.
2. The second requirement for the production of goods and services is labor, i.e. people who will do the work. Some production activities require highly educated workers to perform the necessary tasks. Other activities require workers who can do manual work. Each worker is providing the labor necessary for production.
3. The third requirement is physical capital, i.e. the variety of inputs required at every stage during production. What are the items that come under physical capital?
(a) Tools, machines, buildings: Tools and machines range from very simple tools such as a farmer’s plow to sophisticated machines such as generators, combines, computers, etc. Tools, machines, buildings can be used in the production of goods and services over many years, and are called fixed capital. Raw materials and money in hand: Production requires a variety of raw materials such as the yarn used by the weaver and the clay used by the potter.
Also, some money is always required during the production to make payments and buy other necessary items. Raw materials and money in hand are called working capital.
4. Unlike tools, machines, and buildings, these are used up in production. There is a fourth requirement too. You will need knowledge and enterprise to be able to put together land, labor, and physical capital and produce an output either to use yourself or to sell in the market. This is called human capital.
Every production is organized by combining land, labor, physical capital, and human capital, which are known as production.