Basic Economic Problem · 3 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 6% of your exam marks.
Four factors and their rewards appear occasionally; usually 2 to 4 marks when tested, not on every paper.
The biggest single mistake on this topic is calling money "capital". They are not the same.
Capital is the physical productive asset used to make goods and services. Money is a medium of exchange: a means of paying for things. Money is not a factor of production.
A loan, a bank account balance and a pile of cash are all finance, not capital. The money may be used to buy capital, but the money itself is not a factor of production. There are only four factors: land, labour, capital and enterprise. Money is not a fifth factor.
Identifying which factor of production something is
What comes up: a short context describes an item or action (a machine, a river, a pilot retraining, a founder opening a business) and asks you to name the factor of production it represents.
Write: classify using these criteria: (1) land = naturally occurring, not made by people (rivers, forests, oil fields, fertile soil); (2) labour = human physical or mental effort by workers; (3) capital = a man-made physical resource used to produce other goods or services (machinery, vehicles, tools, factory buildings); (4) enterprise = organising the other factors and bearing the financial risk of a new venture.
Watch out: capital is never money or finance — a bank loan, an investment fund, or a cash balance is finance, not capital. The man-made test is what distinguishes capital from land: if humans built or manufactured it, it is capital; if it exists naturally, it is land. A fertiliser bag on a field is capital (manufactured), not land, even though it ends up on agricultural land.