Economic Resources
Adapted from "Factors of Production" at http://www.landandfreedom.org/econ/econ2.htm and Intro to Business, 6e, by Dlabay, Burrow, and Eggland

 

Economists have long recognized three distinct types of economic resources that people use to create the things they want.

Natural Resources, Human Resources, and Capital Resources are the three types of economic resources, and they are also referred to as "factors of production".

 

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Each resource plays a unique role in the production of goods, and each resource is clearly distinguishable from the other two.

For more information about each of the resources, continue to the next page.

 

 

Natural Resources

Natural resources are defined as everything in the universe that is not created by human beings.

Air, sunlight, forests, earth, water and minerals are all classified as natural resources, as are all manner of natural forces or opportunities that are not created by people.

Human resources use capital resources on natural resources to produce wealth.

Every tangible good is made up of the raw materials that come from nature -- and because all people (and other living things) have material needs for survival, everyone must have access to some natural resources in order to live.

 

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Consider a simple product like a can of chicken noodle soup. What natural resources were used to produce it?

The chickens, vegetables, and spices are the result of crops and livestock grown on rich farmland.

The water is extracted from wells that were filled by rain.

Aluminum was extracted from the ground and used to produce the can.

But it takes more than just natural resources to make a can of soup. Read on to see how the other economic resources play their part.

 

 

Human Resources

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To make the gifts of nature satisfy our needs and desires, human beings must do something with the natural resources; they must exert themselves, and this human exertion in production is called labor.

Everything that people do, to convert natural opportunities into human satisfactions -- whether it involves the exertion of brawn, or brains, or both -- is labor, to the economist.

When natural resources are worked up by labor into tangible goods, which satisfy human desires and have exchange value, we call those goods Wealth.

When labor satisfies desires directly, without providing a material good, we call that "Services"; thus, economists say that labor provides the economy with "goods and services".

 

Let's go back to our can of chicken noodle soup. Many people, or human resources, are need to complete the work required to produce the product.

Farmers raise the livestock and crops. Factory workers and managers use equipment designed by engineers and manufactured by other businesses to process the food.

Truck drivers, salespeople, advertisers, and grocery store employees are also involved in producing the product and making it available to consumers for purchase.

 

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Captial Resources

 

When some of the wealth is used to produce more wealth, economists refer to it as capital.

A hammer, a screwdriver, and a saw are used by a carpenter to make a table.

The table has exchange value. The truck which delivers the table to a retail store, the hammer and other tools -- and even the cash register -- are all forms of capital.

Capital resources increase labor's ability to produce wealth (and services too).

Therefore, there is always a demand for capital goods, and some labor will be devoted to supplying those goods, rather than supplying the consumer goods that directly satisfy desires.

 

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How do capital resources help make our can of chicken noodle soup?

Farmers use tractors and other equipment to plant and harvest crops, and even to feed livestock more efficiently.

Truck drivers wouldn't get very far without their trucks, and salespeople need cars, phones, computers and other devices to make their sales.

Grocery store employees need shelves and label makers to display the soup and tell people how much it costs.

So, you can see, it takes all of the economic resources to produce the products that we all take for granted.

 

 

Captial Goods vs. Consumer Goods

How do we figure out how much of society's labor to devote to capital goods vs. consumer goods?

In a market economy, we don't! The returns, or payments, to capital and labor move naturally toward an equilibrium, or balance, in which neither factor has an advantage over the other.

If a shortage of capital goods develops, people will be willing to pay higher prices for those goods, and more workers will work on making them.

In time, this will create a shortage of consumer goods, and workers will be drawn back toward making them.

Demand for Natural Resources

When there's more demand for natural resources, the natural resources factories gear up and crank out more natural resources -- or, well, er, they can't do that, can they?

That is why natural resources must be defined as a distinct factor of production.

Since natural resources are needed for all production, any time overall production is increasing, natural resources will be in greater demand.

When capital goods are in greater demand, labor will eagerly produce more of them.

But, the supply of natural resources can't be increased, because natural resources are not produced by human labor.

Resources are Limited

All economic resources have a limited supply.

Most resources can be used to produce several different products and services.

If resources are used to produce one type of product, they will not be available for the production of something else.

Individuals, businesses, and even countries compete for access to and ownership of economic resources.

Those resources that are in very high demand or that have a limited supply will command high prices.

Because there are a limited amount of natural resources, there will also be a limit to the amount of goods and services that can be produced.