The demand for factors of production

Factors of production are the resources used to produce goods and services. The four factors of production are:

  • Land
  • Labour
  • Capital
  • Enterprise

The demand for any factor of production is derived demand. this means that a factor of production is demanded for because of its services and not for its sake.

The demand for factors of production is dependent on the following factors:

  1. Cost: The higher the cost of the factors of production, the lower heir demand tends to be. In the case where labour costs are relatively high compared to the cost of capital, then labour would be replaced with capital equipment.
  2. Quantity: The greater the availability of factors of production, the lower their cost tends to be and hence the higher their demand.
  3. Productivity: better quality resources tend to demand a higher price due to their high productivity. e.g surgeons are in high demand based on their highly valued life saving skills and qualifications.