Capital as a Factor of Production


Welcome to class! 

In today’s class, we will be talking about capital as a factor of production. Enjoy the class!

Capital as a Factor of Production


At the end of the lesson, you should be able to;

  • Appraise Capital and entrepreneur as a Factor of Production
  • Distinguish between accountant and economist view of capital
  • Identify the types and characteristics of capital and entrepreneur as a factor of production with their functions


It is a man-made asset which is used to aid production. It is goods not wanted directly for its sake, but for the contribution, it makes to the production of further consumer and producer goods. It is described as wealth put aside for the creation of further wealth. Wealth, in this sense, is the stock of goods or material possession of an individual, business or organization or nation, including a stock of useful and exchangeable goods of a given time that has monetary value. Indeed, capital is a material capable of yielding revenue to the owner. From this definition, we realize that ‘Buildings’ that are used for rent are capitals. ‘Machine’ that is used in the industry is also a capital.

Characteristics of capital
  1. It takes diverse forms.
  2. It is a man-made factor of production.
  3. The reward of capital interests.
  4. It is mobile.
  5. It must be transferable and constantly maintained where static
  6. It must be capable of being created
  7. There should be no difficulty in its being added to
  8. It must be capable of yielding revenue to the owner
  9. It must not be in the hand of one person It must be transferable
Types of capital
  1. Fixed Capitals: are assets which are durable and do not change with the volume of production, e.g. machine
  2. Circulating/Working Capitals: are capitals that change with the volume of production or are used up in production, e.g. raw-materials
  3. Current/Liquid Capitals: are the capitals required for the day-to-day running of production activities, e.g. cash
  4. Social Capitals: are capital assets provided by the government that help to aid production activities, e.g. electricity, motorable roads, pipe-bone water, communication network
Importance of capital
  1. It helps to facilitate mass production
  2. It helps to boost efficiency in production
  3. Capital helps to increase the standard of living of the people
  4. It helps in the location of industry
  5. It helps to improve the quality of products


  1. Define capital as a factor production.
  2. Mention five characteristics of capital.

Entrepreneur as a factor of production

Businessman using his tablet in the office


An entrepreneur is a factor of production that co-ordinates other factors of production to produce goods and services. That is, it is somebody who provides other factors of production, makes decisions and bears the risks involved in the business.  Labour and entrepreneur laterally mean the same thing, but they are economically different, in that, while the entrepreneur is active in decision making, control and management of the business, labour is quite passive.

Functions of an entrepreneur
  1. An entrepreneur bears all the risks involved in the business.
  2. He/she organizes other factors into active resources to yield maximum output.
  3. He/she is the decision-maker.
  4. He/she carries out research to improve the standard of his products.
  5. He/she finances the business.
  6. He/she finds a means of marketing his products.
  7. He/she ensures efficient and effective management and  organization of the business


  1. Who is an entrepreneur?
  2. List five functions of an entrepreneur.

Reading assignment

Amplified and Simplified Economics for SSS by Femi Longe Chapter 4 Pages 45-49

Fundamentals of Economics by R.A.I. Anyanwuocha Chapter 4 Pages 25 – 26 Chapter 12 Pages 102 – 105.

General self-evaluation
  1. What are the basic problems of every society?
  2. Define consumption.
  3. List the importance of opportunity cost to a firm.
  4. State the types of chart used in economic analysis.
  5. What is the scale of preference?


  1. Define capital and explain the types of capital.
  1. Who is an entrepreneur?

In our next class, we will be talking about Division of Labour.  We hope you enjoyed the class.

Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.

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