Economic Resources

Lesson 2

Economic Resources

Economic resources can be referred to as factors of production (or inputs)

Factors of ProductionLand• Renewable resources• Non-renewable resources

LaborCapitalEnterprise

Economic Resources

An economic resource is• Scarce (not unlimited)• Produced with resources• Has an opportunity cost

The are four types of economic resources. We call them the factors of production – the

resources we use to produce goods and services

Economic Resources

Factors of Production

Land

Labour

Capital

Enterprise

Economic Resources Land – includes all of the natural physical

resourcesLand covers all natural resources• Oil• Farmland• Minerals (gold, iron, copper, tin)• Fish

New Zealand Canada Australia

• Forests (trees)• Wind• Rain (water)

Economic Resources

There are two types of land resources

Renewable resources

Non-renewable resources

Economic Resources

Renewable resources – replaced automatically by nature and so can be used forever

Examples• Solar energy• Fish• Trees• Rivers• Wind power

Depletion of Natural Resources Important!!!

If we use renewable resources faster than nature can replace them, then they will become extinct

Collapse in the size of many fish stocks worldwide including the North Sea

Deforestation

Economic Resources

Non-renewable resources – are not automatically replaced by nature and so cannot be used forever

Examples• Oil

• Coal

• Natural gas

• Minerals (gold, copper, tin)

Economic Resources The mobility of land

It is difficult and often impossible to move land resources• You cannot move farmland from one part of China

to another country.

However, land can often be easily converted from one use to another use• You can easily stop using land for farming and build

houses on it

Land itself is geographically immobile but occupationally mobile

Economic Resources Quantity and quality of land

The quantity of land SPACE and its quality does not change much over time• We can cause the quality of some land

resources such as rivers to decrease easily (as happens during industrialization)• The quantity of land resources such as oil

does decrease over time as we use more of it

Economic Resources

Labour – the human input into the production process

It consists of all human effort• Physical effort

• Mental effort

Labor-intensive activity

Asia-Pacific

Rim countries

Hong Kong Taiwan Singapore

South Korea Malaysia

Economic Resources QUESTION: Which of the jobs in these pictures require physical

effort? Which ones require mental effort?

A

BC

Economic Resources

Quantity and Quality of Labour

Quantity of labour refers to how many workers are available (or how many hours of work are available)• The quantity of labour in a country would be

increased by a rise in the retirement age or an increase in immigration

Quality of work refers to productivity of a worker• The quality of labour is improved by training and

education

Economic Resources The productivity of a worker refers to how much

output per hour a worker produces

Productivity is increased by• Human capital (education, training)

• Physical capital

• Technology

Economic Resources The mobility of labour

Geographical mobility Occupation mobility

• – the ability of labour to move freely from one job to another.

Higher mobility increases economic efficiency. Why?

labour mobility are limited by• People’s social ties (don’t want to move far from family)• Lack of information about jobs far away• differences in the price and availability of housing in different

locations• Government travel restrictions (domestic or international)

such as visas• Lack of skills, education, training

Economic Resources

In recent years the issue of the migration of labour has become important

Migrant workers help solve labour shortages domestically and internationally• It is estimated that there are several million migrant

workers traveling around China for work. Why don’t they stay at home?– What benefits do they provide?

– What problems do they cause?

Economic ResourcesThe U.S., E.U. and other developed countries have many

migrant workers from poorer countries in Latin America, Asia, Africa, and the Middle East, both educated and uneducated.

Many highly (and poorly) educated people want to migrate to the U.S. for work, but often face severe restrictions. What does this do the the competitiveness of U.S. companies and the U.S. economy?• Why would the U.S. restrict migrant workers?

Economic Resources

One problem facing some poor countries is

the brain drain – the emigration of many of the

most highly educated workers to rich countries.

People from poor countries with a valued

education can often earn far greater incomes

by moving to rich countries. What are the long

term effects of brain drain?

Economic Resources

Capital – man made resources used to produce other goods and services

Economists usually mean physical capital, not human capital, when they say capital.

IMPORTANT!

• Capital (in Economics) does NOT include financial capital– Financial capital includes money, stocks, bonds and other

financial assets

Capital inputs

The oil industry is a good example of an industry which is capital intensive from extraction through to retailing of petroleum products

Capital-intensive activity

Japan Europe North America

Economic Resources

FactoriesOfficesWarehousesRailwaysMachinesPower stationsLorries (big trucks)

Processed raw materialsHospitalsSchoolsRoadsAirportsSeaportsBridges

• Examples of capital (physical capital)

Economic Resources Consumer goods – goods which give

immediate satisfaction

Examples of consumer goods• Pizza• Eggs• Shoes• Pants• TV• Basketball

Economic Resources

What is the difference between capital (physical capital) and consumer goods?

Capital goods are used to produce product; they do NOT provide immediate satisfaction

Consumer goods provide immediate satisfaction

Economic Resources Working Capital and Fixed Capital

Working Capital refers to stocks of finished and semi-finished goods (or components) that will be either consumed in the near future or will be make into finished consumer goods.

Economic Resources

Working Capital and Fixed Capital

Fixed Capital – factories, offices, machines (they will not be made into other goods or sold).

Economic Resources

The mobility of capital (physical capital)

Some capital goods are physically mobile (such as lorries [big trucks]), but others like power plants are not

Some capital goods are occupationally mobile (they can be used for the production of many goods [an office or copy machine]), but others are not (construction cranes)

Economic Resources

The quantity and quality of capital (physical capital)

These are both increased by investment The quality of capital goods is improved by advances in

technologyThe opportunity cost of investment is that you must

have less consumer goods. Why?• To increase the quantity of capital goods may involve

opportunity cost in terms of consumer goods

Economic Resources

Enterprise – personal initiative to combine resources in productive ways. Involves risk.

Entrepreneurs will usually invest their own financial capital in a business and take on the risks associated with a business investment

The entrepreneur organizes the other factors of production in ways that benefit other people

In return for having innovative business ideas and taking the risk in putting funds into a business the entrepreneur takes any money that the business has left (profit) after the other factors of production have received their rewards 

The key functions of the entrepreneur are to bear risks and organize other economic resources

Entrepreneurs

Economic Resources

Factor

Description Reward

Land All natural resources (gifts of nature) including fields, mineral wealth, and fishing stocks

The reward for landlords for allowing firms to use their property is rent

Labour The physical and mental work of people whether by hand, by brain, skilled or unskilled

The reward for workers giving up time to help create products is wages or salaries

Capital Man made goods used to produce more goods including factories (plant), machines and roads.

The reward for creditors lending money to firms to invest in buildings and capital equipment is interest

Enterprise

An entrepreneur risks financial capital and organises land labour & capital to produce output in the hope of profit

The reward for individuals risking funds and offering products for sale is profit.Unsuccessful firms make losses.

Economic Structure

Primary sector – industries that extract raw materials and foodExamples: agriculture, coal mining, fishing, forestry

Secondary sector – This involves the production of goods in the economy, i.e. transforming materials produced by the primary sector manufacturing, building, publishing, chemicals, toys,

jewelry, housing, etc.

Tertiary sector – servicesExamples: banking, finance, insurance, retail, education

and transport and tourism