To answer the three economic questions, every society must make choices about the economys inputs and outputs. Inputs are commodities or services used by firms in the production processes. An economy uses its existing technology to combine inputs to product outputs. Outputs are the various useful goods or services that result from the production process and are either consumed or employed in further production. Another term for inputs is factors of production. These can be classified in three broad categories: land, labour, capital, and entrepreneur.
· Land or, more generally, natural resources represents the gift of nature to our productive processes. It consists of the land use for farming or for underpinning houses, factories, and roads; energy resources to fuel or cars or factories; and non-energy resources like copper, tin, and sand. In todays congested world, we must broaden the scope of natural resources to include our environmental resources such as air, water, land, and climate.
· Labour consists of the human time spent in production working in automobile factories, tilling the land, teaching school, or baking cakes. Thousands of occupations and tasks, at all skill levels, are performed by labour. It is at once the most familiar and the most crucial input for an advanced industrial economy.
· Capital resources form the durable goods of an economy, produced in order to produce yet other goods. Capital goods include machines, roads, computers, hammers, trucks, steel mills, automobiles, washing machines, and buildings.
· Entrepreneur people who accepts both the risks and the opportunities involved in creating and operating a new business venture.