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Economic Systems and Production Possibility Curves: Question 6

Syllabus 1.3

Multiple choice AS 1 mark

Which of the following correctly pairs a factor of production with the reward earned by whoever supplies it?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Recall each factor of production and its reward

Economists group all resources used to produce goods and services into four factors of production, each with its own characteristic reward:

  • Land. Natural resources, including the land itself and what lies on or under it. Reward: rent.
  • Labour, the physical and mental effort of workers. Reward: wages (or salaries).
  • Capital, manufactured and financial resources used to produce other goods and services (machinery, buildings, and the finance used to acquire them). Reward: interest.
  • Enterprise, the entrepreneur’s role in organising the other three factors, taking production decisions, and bearing the risk of loss. Reward: profit.

Step 2: Check each option

  • A (Land, profit): incorrect. Land is rewarded with rent; profit is the reward to enterprise.
  • B (Labour, rent): incorrect. Labour is rewarded with wages; rent is the reward to land.
  • C (Capital, interest): correct. Whoever supplies capital, physical capital goods or the finance used to buy them, earns interest as their reward.
  • D (Enterprise, wages): incorrect. Enterprise is rewarded with profit; wages are the reward to labour.

Final answer

  • Capital is rewarded with interest, option C.