The third requirement is capital, i.e. the variety of inputs required at every
stage during production. What are the items that come under capital? (a) Tools, machines, buildings:Tools and machines range from very simple
tools such as a farmer's plough to sophisticated machines such as generators,
turbines, computer automated machines etc. They are not used up or consumed
immediately in the production process. They help to produce these goods over
many years. They require some repair and maintenance so that they remain useful
and can be used year after year. These are called fixed capital or physical capital.
However, all machines have to be replaced due to many years of use by new and
often better tools and machines. (b) Raw materials and money required: The various raw materials such as
the yarn used by the weaver and the clay used by the potter are used in production.
Some money is also required to buy other necessary materials for production and
make payments for completing the production. It takes time to complete the
production and then sell these goods or services in the market. Only then does
money flow back into the production process. This requirement for raw material
and money is therefore called working capital. This is different from physical
capital because unlike tools, machines or buildings, these are used up in the
production cycle. The fourth requirement is technology and enterprise:To be able to use
land, labour and physical capital in a meaningful way to produce some goods or
services, knowledge of the process of production and confidence is essential.
Owners of the physical capital or managers hired by them provide this knowledge.
The owners also have to take the risks of the market i.e. whether the goods or
services produced would find sufficient buyers. In our society, most goods and
services are produced for sale in the market, hence the entrepreneurs who produce
for the market have to plan, organise and manage. These entrepreneurs could be
farmers, shopkeepers, small
scale manufacturers, service
providers such as doctors,
lawyers etc or large companies.
Their goods and services are
bought by people. They may earn
a profit or could suffer a loss.
Every production is
organised by people or
entrepreneurs combining the
elements of land, labour and
capital. These are known as
factors of production.