Cambridge IGCSE Economics 0455
Syllabus points
- Define the four factors of production and their rewards.
- Explain the mobility of the factors of production.
- Explain the influences on the demand for and supply of each factor.
The four factors
Everything produced uses a combination of four factors of production — the resources used to make goods and services. Each factor earns a reward (a payment).
| Factor | Meaning | Reward |
|---|---|---|
| Land | Natural resources (soil, minerals, sea, forests) | Rent |
| Labour | Human physical and mental effort | Wages |
| Capital | Human-made aids to production (machines, tools, factories) | Interest |
| Enterprise | The entrepreneur who organises the other factors and takes risks | Profit |
Key definitions
| Term | Definition |
|---|---|
| Capital | Manufactured goods used to produce other goods and services. |
| Enterprise | The willingness of an entrepreneur to combine factors and take business risk. |
| Factor mobility | How easily a factor can move between different uses or locations. |
The mobility of factors
Mobility measures how easily a factor moves to a different job or place. It has two forms:
- Geographical mobility — moving between locations (e.g. a worker moving to another city).
- Occupational mobility — moving between different types of use (e.g. a worker retraining for a new industry).
Land is geographically immobile (it cannot be moved) but can be occupationally mobile (a field used for farming or housing). Labour mobility is limited by family ties, housing costs and the need for new skills. Immobile factors can cause unemployment when industries decline.
Influences on demand and supply of factors
- Labour — demand rises when the good it produces is in demand (derived demand) and when the worker is productive. Supply depends on population, wages, skills and migration.
- Capital — firms demand more capital when interest rates are low and when it raises productivity.
Worked example
A coal mine closes. Its miners have skills specific to mining (low occupational mobility) and may own homes nearby (low geographical mobility). Even if jobs exist elsewhere, these workers may stay unemployed until they retrain or move — showing why factor immobility matters for the economy.
Common exam mistakes
- Calling money "capital" — in economics, capital means machines and tools, not money.
- Forgetting enterprise as the fourth factor.
- Mixing up geographical and occupational mobility.
Exam technique
Learn the four factors and rewards precisely — a common short-answer question. Use factor immobility to explain structural unemployment (links to Unit 4).
Quick revision
- Land–rent, Labour–wages, Capital–interest, Enterprise–profit.
- Capital = human-made aids to production (not money).
- Mobility: geographical (place) and occupational (use).