BASIC CONCEPTS

Economic ‘analysis traditionally divides factors of production into three categories: land, labor, and capital. The first two of these are called primary)’ or original factors of production, whose supplies are d determined largely outside the marketplace To we add a produced factor of production, capital. Capital (or capital goods) of those durable produced goods that arc in turn ‘J·•ed as productive inputs for further production. Some capital goods might last a few years, while others ight last for a century or more.

But the essential property ‘of a cap-‘ ital good is that it is both an input and an output. There are three major categorlcs of capital g~: structur~ (such as factorie and home ), equipment (consumer durable goods like automobiles and producer durable equipment like machine tools and computers). and inventories of inputs and outputs (such as cars in dealers’ lots).

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