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Difficulty: HardFactors of Production and Their Rewards

Pair each productive resource listed in Column I with its underlying economic characteristic and payment mechanism described in Column II.

  • LandCompletely fixed in total natural supply and receives pure economic rent as its return
  • LabourHuman physical or mental effort whose real remuneration fluctuates inversely with price inflation
  • CapitalMan-made wealth utilized to facilitate further production, earning interest as liquidity reward
  • EnterpriseUninsurable risk-bearer and residual claimant whose compensation can be zero or negative

Answer

Land pairs with completely fixed natural supply earning economic rent; Labour pairs with human effort whose real remuneration fluctuates inversely with inflation; Capital pairs with man-made wealth earning interest; Enterprise pairs with the residual risk-bearer whose compensation can be negative.
Land is a primary, non-reproducible resource earning rent; Labour is human exertion earning wages affected by inflation; Capital is produced wealth used for further production earning interest; Enterprise combines factors and bears business uncertainty for residual profit.

Step-by-Step Solution

1
Analyze the economic attributes of Land
Land has a fixed supply provided by nature and receives economic rent.
Land cannot be increased in total quantity by human effort.
2
Evaluate the reward dynamics of Labour
Labour earns wages; inflationary price increases reduce the real purchasing power of nominal wage earnings.
Real wage measures the quantity of goods and services nominal wages can purchase.
3
Determine the origin and return of Capital
Capital is man-made assets used in production, yielding interest.
Interest compensates capital owners for postponing consumption and extending financial resources.
4
Examine the role and return of Enterprise
Enterprise coordinates factors and accepts uninsurable business uncertainty to claim residual profit.
Unlike fixed contractual factor payments, profit is a variable residual that can result in financial loss.

Key Concept

Factors of Production and Their Rewards
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Topics

Factors of Production and Their Rewards

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