In economics, factor payments are the income people receive for supplying the factors of production: land, labor, capital or entrepreneurship. Payments made of scarce resources, or the factors of production in return for productive services. They are also categorized according to the services of the productive resources being rewarded. As wages are being paid for services of labor, interest is paid for the services of capital, rent is paid for the services provided by the land or other immovable assets and profit is for the factor of payment to entrepreneurship. An economy is dependent on the production of goods and services, hence factors of production are required for the production of goods and services. They are broadly divided in the three factors of production: land, labor, and capital. Land is the primary factor of production. Labor is the specific factor of production and payment is made in the form of wage. Capital is regarded as secondary factor of production as it can be manipulated by economic activity. Payment received would be in the form of interest. Later Entrepreneurship was added as the fourth factor of production. It earns profit to the entrepreneur. Factors of production are owned by households and they supply these factors of production to firms and in return earn wages, interest, rent and profit. Households buy goods and services with this money. Circular flow of national income Let one study with the help of circular flow of income how flow of goods and services between households and firms is balanced by flow of factor payments made in exchange of them. Consider the circular flow of income in a two-sector economy where there is no government, no capital market, and no foreign sector. Households own all the factors of production: land, labor, capital. These factors of production are sold to the firms to produce goods and services through factor markets. Firms make use of these resources and provide goods and services to the household through product markets. However the exchange of goods and services and factors of production takes place with the help of the financial flows that move in the reverse direction. As the households purchase goods and services from firms it is their consumption expenditure which in turn becomes income or profits for the firms. On the other hand, when firms buy factors of production from the households they pay factor payments in the form of