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Factors of Production – Class 8 Social Science notes, important questions and MCQs

NCERT Class 8 Social Science, chapter 7. Notes, key terms, important questions with answers and MCQs.

Chapter overview

Goods and services are produced by combining four factors of production: land, labour, capital and entrepreneurship. Each factor earns a reward: land earns rent, labour earns wages, capital earns interest and the entrepreneur earns profit. Using these factors efficiently increases production and incomes.

The four factors

Land: all natural resources used in production, such as soil, water, forests and minerals.
Labour: human effort, physical and mental, such as that of farmers, factory workers, teachers and doctors.
Capital: man-made goods used to produce other goods, such as tools, machines, buildings (fixed capital) and raw materials and money for running the business (working capital).
Entrepreneurship: the ability to combine the other factors, take risks and make decisions to start and run a business.

Rewards and human capital

Rewards: rent for land, wages for labour, interest for capital and profit for the entrepreneur.
Education, training and health improve the quality of labour; this is called human capital.

Example of production

A small bakery uses land (a shop), labour (bakers), capital (ovens, flour, sugar) and entrepreneurship (the owner who plans and takes risks).
If any factor is missing or poor, production suffers.

Key terms

Factors of production: the resources used to produce goods and services: land, labour, capital and entrepreneurship
Fixed capital: tools, machines and buildings used in production over many years
Working capital: raw materials and money used up in a production cycle
Human capital: the skills, knowledge and health of workers that make them more productive

Important questions with answers

What are the four factors of production?2 marks

The four factors of production are land (natural resources), labour (human effort), capital (man-made goods such as tools, machines and money used in production) and entrepreneurship (the ability to organise the other factors and take risks).

Distinguish between fixed capital and working capital.3 marks

Fixed capital includes tools, machines and buildings that are used in production over many years, such as a tractor or an oven. Working capital includes raw materials and money that are used up in one cycle of production, such as seeds, flour or fuel.

Explain the four factors of production and their rewards with the example of a farm or a small business.5 marks

Land includes all natural resources used in production; for a farm, it is the field, soil and water, and the reward for land is rent. Labour is the human effort, physical and mental, put into production; on a farm it is the work of the farmer and farm workers, and the reward is wages. Capital consists of man-made goods used to produce other goods; fixed capital includes the tractor, plough, pump set and storage shed, while working capital includes seeds, fertiliser and money for daily expenses; the reward for capital is interest. Entrepreneurship is the ability to bring land, labour and capital together, decide what and how to produce, and bear the risk of loss; the farmer who plans the crop and invests money acts as the entrepreneur, and the reward is profit. Production increases when all factors are available and used efficiently, and investing in education, skills and health raises human capital, making labour more productive.

Quick revision

Four factors: land, labour, capital, entrepreneurship.
Rewards: rent, wages, interest, profit.
Fixed vs working capital.
Human capital: education, training, health.

Exam tips

Match each factor with its reward: land–rent, labour–wages, capital–interest, entrepreneur–profit.
Use one example (a bakery or a farm) to explain all four factors together.

Practice MCQs

The reward for labour is
1. wages
2. rent
3. interest
4. profit
Show answer
Answer: (a) wages. Workers are paid wages.
Machines and tools are examples of
1. land
2. labour
3. capital
4. entrepreneurship
Show answer
Answer: (c) capital. They are man-made means of production.
Soil, water and minerals are part of which factor
1. capital
2. land
3. labour
4. profit
Show answer
Answer: (b) land. Land includes all natural resources.
Raw materials used up during production are
1. working capital
2. fixed capital
3. human capital
4. land
Show answer
Answer: (a) working capital. They are consumed in one cycle.
The person who combines the factors and takes the risk is the
1. labourer
2. landlord
3. entrepreneur
4. banker
Show answer
Answer: (c) entrepreneur. The reward is profit.
The reward for capital is
1. interest
2. wages
3. rent
4. profit
Show answer
Answer: (a) interest. Money lent for production earns interest.
Improving workers' education and health increases
1. natural resources
2. human capital
3. fixed capital
4. rent
Show answer
Answer: (b) human capital. Skilled, healthy workers are more productive.
A baker's oven, used for many years, is
1. working capital
2. labour
3. land
4. fixed capital
Show answer
Answer: (d) fixed capital. It is not used up in one cycle.

All chapters of Class 8 Social Science

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.