The concepts of “production factors” and “factor income” are interconnected, and this relationship will be displayed in this article.
Factors of production can represent the following types of resources, using which:
- the organization of the production of goods;
- regulated volumes of finished products.
In other words, they are identical to economic resources, which are determined by the sources and means of production.
In turn, economic resources can be classified in the context of the following features: natural, labor, capital, working capital, information and financial.
Based on these types of resources, it is necessary to briefly characterize each of them. For example, labor can be represented as a combination of mental and physical abilities used by people in the process of creating goods. Its main characteristics are:
- the intensity determined by the amount of labor spent over the adopted period of time;
- productivity, measured by the amount of output per unit of time.
Natural resources include land, which is divided into:
- plots where production facilities are located;
- arable land on which various plantations and crops of grain, melons and gourds are grown;
- mineral deposits.
Another important natural resource is entrepreneurial ability. It can be possessed only by a certain part of people performing a huge set of various functions, without which successful effective production activity is simply impossible.
The meaning of the concept of “capital” was gradually adjusted with the constant development of the economic worldview. For example, Riccardo and Smith considered him a means of production. Other experts in the field of economics claimed that it combines money and securities. Today, capital is understood as everything that can bring income to its owner. Based on the latter definition, it is divided into real, monetary and financial. However, this factor still requires some clarification. Thus, the financial component of capital in the form of shares, bonds and bank deposits cannot be attributed to production factors, since it is not directly related to the production process.
Factor revenues include those derived from the use of factors of production. When comparing them, the following indicators are formed.
From the use of labor we obtain factor income - wages. Rent is represented by the income that the owner regularly receives from the use of property and land. The interest is determined by the payment from the use of borrowed (credit interest) or funds invested for a certain period by the investor (deposit interest).
The concept of “net factor income” is used for funds received from abroad. In other words, this is the difference between the incomes received by compatriots abroad and the incomes of foreign citizens who received them in our country.
Factor income can be used in the calculation of many macroeconomic indicators of the state. The following are some examples.
The gross national product distinguishes the following factor incomes:
- salaries and other compensation for hours worked for citizens;
- own income of organizations, enterprises of institutions;
- rental income;
- profit remaining after payment of wages and interest on the loan;
- net interest, represented by the difference in interest payments of corporations paid to others and those received from other firms.