ECONOMIC RESOURCES

ECONOMIC RESOURCES
Economic resources are scarce relative to the infinite needs and wants of people and businesses operating in the economy the basic economic problem). It is important to use these resources efficiently in order to maximise the output that can be produced from them. Only by using the resources efficiently can an allocative mechanism strive to find the best solution to the basic economic problem.

THE FACTORS OF PRODUCTION

Resources are sometimes called factors of production and are then classified as land, labour, capital and enterprise. These are used in the production of goods and services in an economy. Factors of production (or productive inputs or resources) are any commodities or services used to produce goods and services.

FACTORS OF PRODUCTION

LAND - refers to all the gifts of nature and includes not only land itself, but also all the minerals in and on the land (like oil, coal and iron ore), the sea and everything in the sea, and the air and everything in the air. Some of these natural resources are renewable i.e. quickly replenished by natural processes e.g. crops, whilst others are non-renewable i.e. not replaced naturally e.g. reserves of fossil fuels or oil are depleted when used, except in the very, very long term. All natural resources available for production.
LAND

LABOUR - refers to any human effort (manual or mental), which is directed to the production of goods or services. This is also known as human capital. The skills of the workforce and the quantity of labour they produce.

LABOUR

In the UK, of about 59 million inhabitants only approximately 35 million are of working age (16-64 years for men and 16-59 for women), and of those about 28 million have paid jobs. Not all labour is of the same quality. Some workers are more productive than others because of the education, training and experience they have received. Human capital also refers to the quality of labour resources, which can be improved through investments in education, training, and health CAPITAL - refers to man-made resources that are used to produce goods or services in the future. There are three main types of capital that we are interested in: All man-made aids to future production.
CAPITAL

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1. Industrial capital or Fixed Capital Industrial Capital or Fixed capital includes machinery, plant and equipment, new technology, factories and buildings - all goods designed to increase the productive potential of the economy in future years. 2. Social capital - belongs to the whole community, e.g. schools, hospitals, roads. 3. Financial capital - is money waiting to be used to buy capital goods. When capital goods are bought this is called investment. It refers to spending by firms on capital goods like plant (factories) and machinery. ENTERPRISE - Enterprise refers to the decision making and risk taking of entrepreneurs. Entrepreneurs make new types of products or use a new technique or method to produce the same product. An entrepreneur risks financial capital and organises land labour & capital to produce output in the hope of profit. The success and/or failure of a business will often critically depend on the quality of entrepreneurship. The risk-taking role of business owners undertaken in the pursuit of profit.

ENTERPRISE

FACTOR REWARDS
Factors of production are used to create output to be sold in markets. Each factor used in production can therefore expect some reward.
FACTOR REWARD

LAND LABOUR CAPITAL ENTERPRISE

Rent Wages Interest Profit

The reward for landlords for allowing firms to use or exploit their property is rent. The reward for workers giving up time to help create products is wages. The reward for creditors lending money to firms to invest in buildings and capital equipment is interest. The reward for individuals risking funds and offering products for sale is profit.

ECONOMIC GOODS AND FREE GOODS

ECONOMIC GOODS - Economic goods (also known as scarce goods) are those goods that use up scarce resources in their production. Scarce goods require resources to make them and therefore involve an opportunity cost in their production and consumption. These goods have an opportunity as something has to be sacrificed to obtain them. Nearly all resources are scarce. Even products supplied free of charge, e.g. the NHS are still economic goods as although provided free they still use up limited resources in their production they still have an opportunity cost. It is simply that they are not paid for by us but by the government. FREE GOODS - Free goods are those goods of which there are enough to satisfy everyones wants, e.g. fresh air, seawater. A free good is available without the use of resources and therefore has no price or opportunity cost. No resources need to be sacrificed when someone, say, breathes

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air or swims in the sea. There are very few free goods and these are only free under certain conditions. A free good is not simply any product which is provided free of charge, the National Health Service, for example, is provided free of charge, but there is still only a limited supply of it and there is certainly an opportunity cost involved in its provision. Hence it is not a free good. Any good which is limited in supply and therefore has an opportunity cost. Any good which is unlimited in supply and therefore does not have an opportunity cost.

ECONOMIC GOOD

FREE GOOD

Economics does not concern itself with free goods. This is because there is no economic problem involved with free goods all wants by definition can be satisfied and there is no opportunity cost involved in their production/consumption. Therefore no decisions or choices have to be made over the allocation of resources.

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