In human action, not all desires can be met by natural resources alone. Sophisticated human desires require an indirect means of satisfaction. These goods of higher order can be transformed into consumption goods through human action. The factors of production are divided into two categories: natural resources and man-made factors. While natural resources include land and non-human elements, labor and capital goods fall under man-made factors of production. These scarce production goods can only be used in one stage of production and are often used up in the process. However, there is one non-scarce resource required in production: the technological idea or strategy.
The three primary scarce production goods are land, labor, and capital goods. Each of these factors can only be utilized in one stage of production at a time. As a result, production is subject to the law of diminishing marginal returns, where each additional unit of a factor produces a diminishing amount of output. Moreover, these scarce goods are often used up in the production process, which creates an opportunity cost when deciding how to allocate them between different production processes. For example, a farmer cannot simultaneously plant wheat and corn on the same plot of land, and a factory cannot utilize the same machine for producing two different products.
The factors of production can be categorized into natural and man-made resources, and further divided into original factors of production and those created by human labor. Labor and land are two essential elements of the original factors of production, and are fundamental inputs in the production process. While they are inherently limited and scarce, they are essential in creating value and satisfying human desires.
The technological idea or strategy is a non-scarce resource required in production. Without these ideas, actors would not know how to move from one stage of production to another. The knowledge of transforming goods is necessary to move from the production of a good to the consumption of the same. Ideas of how to transform goods are non-scarce and can be enjoyed across numerous production stages without diminishing marginal utility. Moreover, the idea can be duplicated and shared without any loss in quality or value. For instance, the recipe for baking a cake can be utilized by any number of individuals to produce the same result without exhausting the idea.
The factors of production are subject to property rights. The use of these factors can be allocated according to the subjective preferences of the owner. Any infringement on these rights is a violation of the owner’s right to use their property. Property rights incentivize the efficient use of scarce factors of production and the creation of non-scarce ideas. In the absence of property rights, there would be no incentive to utilize scarce resources efficiently, leading to overuse or underuse of resources.
Production goods can be categorized into scarce and non-scarce resources. Scarce production goods include land, labor, and capital goods, which can only be used in one production stage at a time and are often used up in the process. Non-scarce production goods, such as technological ideas or strategies, are essential for production but are not subject to diminishing marginal returns. Property rights play a crucial role in the efficient allocation and utilization of scarce production goods, and they incentivize the creation and sharing of non-scarce ideas.