Factors Of Production In Economics

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Factors of production is an important concept in economics, it is the inputs used in the production of goods and services in the attempt to make an economic profit. Without factors of production, none of the goods and services can be produced and sold, not to mention economic growth. There are four major factors of production mainly discussed in economics, which are land, labor, capital and entrepreneur. People who provide factors of production would get some earnings in return. In conventional economics, the reward goes to those who own them. For land, the reward is rent; for labor, it is wages; for capital, it is interest; and payment to entrepreneur is profit. Land does not mean only the ground, it represents all the natural resources,…show more content…
Another easier way to define the factors of production is by the method of determining their reward or price. Islamic framework recognizes two categories of factor prices, one category is called Ujrat and the other is called profit. There are two general factor pricing is Islam, which are justice and scarcity. Islam allows Ujrat only for those inputs which are not directly "consumed" in the production process. Therefore, money is not allowed to be rented and it can not claim any Ujrat or interest. With the same reason, raw materials cannot be rented or placed on Ujrat. All Ujrats are fixed and known in advance with certainty. On the other hand, profit is an income for visualizing a profitable productive venture and bearing the risks associated with the establishment of these activities. Raw materials are generally priced in the commodity market and therefore are not allowed to be placed on rent or to share profits. Thereby, the only way to earn profit from raw materials is to invest them in a productive…show more content…
It can be rented out at a fixed rate for the use in a production process. This is allowed because despite the production incur losses, but the physical assets tend to suffer depreciation as well. Hence, its price must be paid no matter what outcomes of the project is to be. Next, Islam rejects interest as the reward of capital. This is because it is injustice for capital to receive benefits only and not sharing any losses, which means no matter the business is earning or losing, the owner of capital is paid a nominal interest for the capital. Besides, it tends to be an earning without hard work. In addition, interest is considered as a cost of production where it will lead to high price charging and brings burden to consumers. Entrepreneur is also highly associated with interest. In an interest-based system, entrepreneur has to pay fixed interest even though incurring losses. Therefore, interest is forbidden in
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