Topic List

Basic Concepts-Resources (FOP)

Terms/Ideas:

Capital Resources | Derived demand | Entrepreneur | Factors of Production | Human Resources | Interest | Interest-reward for capital resources | Natural Resources | Non-Renewable Resources | Profit | Profit-reward for entrepreneurship | Renewable Resources | Rent | Rent-reward for natural resources | Resources | Wages | Wages-reward for human resources

ADDITIONAL QUESTIONS AND ANSWERS (PRINTABLE) FOR THIS TOPIC.

Factors of production

Resources (or factors of production) are the economic inputs used by producers in the production process. Resources can be classified as natural resources, capital goods, human resources and entrepreneurship. The factors of production (resources) are limited or finite, relative to the unlimited desires (wants) of society. Derived demand is the way in which buyers want factors of production (or resources). They want the resources to produce goods or provide services.

Natural resources are the gifts of nature from land, sea and air, along with whatever they could contain and/or sustain–minerals, plants, animals, etc. The reward for owning (or payment for use) of natural resources is rent.

Capital resources are man-made aids to be used to produce other goods and services – machinery, tools, buildings, etc. Capital resources used by firms can be purchased (owned), hired or rented from other firms. The reward for owning (or payment for use) of capital resources is interest.

Some resources can be considered either a natural resource or a capital resource depending on how they are classified, for example, sheep can be classified as a natural resource because they occur in nature (and are not man-made). Other people would argue that sheep should be classified as a capital resource when they are man-made as a result of selective breeding, cloning, genetic engineering or modification.

Human resources are individuals who form the labour force providing their work or effort – workers, shop assistant, driver, etc. A nation's population will be the main determinant of the factor of production human resources (or labour). The reward for owning (or payment for use) of human resources is wages.

Entrepreneurs are individuals willing to organise the other factors of production and take risks – Bill Gates, Henry Ford, owners or managers of a business. The reward for owning (or payment for use) of entrepreneurship is profit.

Renewable resources are resources that can be used time and time again, so long as they are managed appropriately. Renewable resources are sustainable and can naturally regenerate, for example forests, wind and solar power. All resources (both renewable and non-renewable) are limited. Renewable resources can be exhaustible if they are not managed appropriately because of the length of time it takes for them to regenerate.

Non-renewable resources are resources that are exhaustible. Once they are used up they are gone forever, for example coal, oil, natural gas. Native fish could be considered non-renewable because of the length of time it takes for the fish stocks to regenerate.

Inputs in the Production Process

Natural resources, capital goods, human resources and entrepreneurship are the economic inputs used by producers in the production process. Depending on the business some factor inputs are unable to be changed in the short run and are considered to be fixed, other factor resources or inputs are able to be used in greater quantities, these would be considered to be variable inputs in the production process. However, in the short run every firm will have at least one fixed factor. This could be skilled workers (human resources) or the land (natural resources) used in the production process. For firms involved in manufacturing, the fixed input in the production process is most likely to be the building (factory, office or premises) from which the firm operates. It could also be other capital resources such as equipment, machinery or vehicles. The variable input that may be easier for some firms to change in the short run could be the ability to hire or employ additional workers or the ability to use more raw materials or power. In the long-run firms can change all inputs (the factors of production) and the firm can be more adaptable and change the size of its operations.

Final demand is the way in which buyers want goods and services. They want them for final use. Derived demand is the way in which buyers want factors of production (resources). They want resources to produce goods and services.

Price is what a firm receives from the sale of a good or the provision of a service to its clients (customers).  Cost is how much it takes for a firm to either get a good produced or service ready to sell in the market. Costs include all the inputs used in the production process such as raw materials, power, office expenses and wages. Therefore, cost and price are not the same thing.

 

©Copyright eLearn Economics 2012–2018.
Website By: Lovegrove Design