Effect on Income and Wealth

How much of each of the factors of production an individual has determines his or her wealth. The more land and capital you have, the richer you will probably be. The greater your entrepreneurial skills, the more income you might earn. In other words, the distribution of factors of production affects a nation’s income distribution—what percentage of Americans are rich and what percentage are poor. The same holds true across nations as well. Nations with many natural resources at their disposal, for example, tend to be wealthier than nations with few natural resources.

• factors of production: resources of land, labor, capital, and entrepreneurship used to produce goods and services
• land: natural resources and surface land and water
• labor: human effort directed toward producing goods and services
• goods: tangible objects that can satisfy people’s wants or needs
• services: actions that can satisfy people’s wants or needs
• capital: previously manufactured goods used to make other goods and services
• productivity: the amount of output (goods and services) that results from a given level of inputs (land, labor, capital, and entrepreneurship)
• entrepreneurship: when individuals take risks to develop new products and start new businesses in order to make profits
• technology: the use of science to develop new products and new methods for producing and distributing goods and services