How do agricultural and industrial businesses determine where to set up shop and where and how to distribute their goods? These decisions are guided by the location of the factors of production. Remember the factors of production are:

• Land, which includes all raw materials or natural resources; for example, minerals, timber and the land itself.
• Labor, which includes people or human resources. They create goods and services through their physical and mental efforts.
• Capital, which is the financial funding, buildings and machinery that is used to produce and distribute goods and services more efficiently.
• Entrepreneurism, which includes imaginative thinking, risk-taking, management and organizational skills needed to operate a business.

Agriculture, also known as farming, is the business of cultivating livestock or producing crops. Industry refers to a sector of the economy specializing in a particular product. Examples of industries are the automobile industry or the computer industry. It is commonly accepted that industries are located in cities and that farms are located in rural areas. But why is that? In this case study will take a closer look at how the factors of production guide location of both agriculture and industry.

CS Question #1: Why would it be impractical to set up cattle farm in the middle of a major city?

The location of agricultural production is heavily dependent on land as a factor of production. Farm animals and crops are very sensitive to environmental conditions. Certain crops must have specific soil and temperature needs met in order to create an output. Oranges, for instance require a warm, sunny climate. This is why their production is central to locations like Florida and California. The size of available land is also a factor. Rural areas provide larger portions of land at a lesser expense, compared to metropolitan areas.

Industrial location may or may not hinge on the actual land. If the industry requires specific natural resources for production, then this will definitely guide the location of the business. For instance the oil mining industry must be located where there are oil fields. In the United States, Texas has a large amount of oil deposits; therefore many oil refineries are located there.

CS Question #2: Identify an industry that is not dependent on the land for raw materials or natural resources? Explain your answer.

Capital effects the efficiency of agricultural business. Capital also effects the distribution of agricultural goods. The spatial distribution of transportation and retail facilities refers to where to sell the good. This is a very important factor in the success of an agricultural business. Location of retail facilities and distribution is guided by demand. Often the demand for agricultural goods is in a different location than where they are produced. For instance if the location of soy bean farming will be where land conditions are ideal. Because of this, the market in that area will be over-saturated or even non-existent.

Technology and machinery are the very heart of industry. Most industries in manufacturing and information technology require certain capital resources that cities offer. Cities offer larger and more dependable infrastructures than rural areas. The buildings offer support for the large amount of employees and energy use that is required to run most industrial businesses. Industry, therefore, is most often located in metropolitan areas where their capital needs are met.

The success of an industry is also heavily dependent on the location of the retail distribution of its good. Industries focus on mass production. Though there is often a market for some of their goods and services where they are located, it is not enough to meet the supply and create a profit. Industries must distribute to other locations where further demand will create a profit.

CS Question #3: Why is distribution location important to the success of all businesses?

Labor is another factor that guides the location of farms. Agricultural production requires knowledge, talent and experience specific to what is being grown or cultivated. Agricultural labors are located in rural areas where they learn and gain experience in their field. The location of labor is guided by the demand. In other words, labor is guided by the same factor of production that the business is. In the case of agriculture, it's land. For example, if you are an expert in growing oranges, it only makes sense that you would live in an area where orange farming is prevalent.

Industrial businesses rely heavily on labor to determine their location. We know that labor is guided by the same factor of production that the business is. In the case of industry, it's capital. Industrial laborers will live and work where there is a need for their specific industrial skills? For instance, individuals with experience in software programming might live in California's Silicone Valley where the demand for such a skill is high.

CS Question #4: Why is the location of labor dependent on their employer's requirements for meeting other factors of production?

Further Thought:

1. How do you think entrepreneurism affects the location of industries?
2. How do you think entrepreneurism affects the location of farms?
3. A business that decides to distribute internationally will need to consider what in terms of retail location or distribution location?