Let’s take a look at an example: baking a cake. What factors of production go into the baking of a cake?
| Natural Resource | Wind, harnessed to produce electricity that powers the electric mixer and oven |
|---|---|
| Labor | The baker’s labor combined with the creativity and skills needed to actually bake and decorate it |
| Capital | Ovens, cake pans, flour, sugar, butter, and other ingredients used to make the cake |
| Entrepreneurship | An individual who starts the bakery or runs a home-based business baking and selling cakes to customers |
If you consider just some of the factors of production involved in baking even a very simple cake, what would happen if one of the four inputs was missing? What if you lacked electricity or an oven? What if you lacked the skills to bake or decorate the cake? What if you had the first three factors of production but not the fourth, entrepreneurship? You can conclude that all four factors of production are required to create the outputs that would get you into the cake business—or any business.