Factor Payments

Factor payments are the earnings received by the owners of the resources used to produce goods and services. These resources, or factors of production, include land, labor, capital, and entrepreneurship. For example, landowners earn rent; workers earn wages; capital owners receive interest; and entrepreneurs earn profits. These payments compensate resource owners for their contributions and are essential for incentivizing production and economic activity. Essentially, factor payments are the income individuals or entities earn from providing the basic inputs needed to create goods and services in the economy.