Production is creation or addition of value or wealth. It consists not only of goods but also of services. In other words production is creation of utility having exchange value. The act of production is not complete till the commodity reaches the hands of the consumers. Several factors determine production i.e. natural factors, political factors, technical process, and development of credit, banking, transport & communication and character of people. The production of wealth requires the co-operation of several factors of production. These factors are known as inputs in the process of production i.e. land, labour, capital & organisation. What they produce is the output.
1. Land: By land we not merely mean soil but everything on above below the surface of the earth given to us by nature. Reward to land is known as rent.
2. Labour: Any activity, mental or manual undertaken to earn an income is labour. Reward to labour is wages and salaries.
3. Capital: It is the produced means of production. Reward to capital is interest.
4. Organization or enterprise: it is the work of bringing land, labour and capital together and making them work harmoniously and in the process paying each. It includes organising business and taking risks. Reward to organisation is profit.