Lesson 8: Types of Resources and Factor Payments
Lesson objective
At the end of this lesson, you will be able to:
- Define resources.
- Explain the types of resources and factor payments of each category of resources.
Brainstiorming Question
Can you explain the meaning of resources?
Key Terms and Concepts
- Resources
- Free resources:
- Economic (Scarce) Resources:
- Entrepreneurship:
- Land
Resources are inputs used in the process of production in order to make goods and services available to the society.
A resource is said to be free if the amount available to a society is greater than the amount people desire to have at zero price.
A resource is said to be economic or scarce when the amount available to a society is less than what people want to have at zero price.
Entrepreneurship refers to the talent for organizing and managing production factors to create goods and services while taking on the risk of losses, with profit as its reward.
In economics, land refers to all natural resources used in production, including raw materials like minerals, forests, water, and agricultural resources. It is one of the four factors of production, along with labor, capital, and entrepreneurship.
In the economic sphere, resources are the essential inputs used to produce the goods and services that society craves. However, these resources are not created equal – they can be broadly classified into two distinct categories: free resources and economic resources.
Free resources are those that are abundantly available and accessible at no cost to people. These are the bountiful gifts of nature, such as air, sunshine, and free-flowing streams, which are unlimited in supply and have no associated price tags.
In contrast, economic resources are scarce – the amount available is less than the amount people desire to have, even at zero cost. These resources carry non-zero prices, as they must be rationed and allocated through economic mechanisms. Examples of economic resources include various forms of human labor, natural resources like fertile land and clean water, capital goods like machinery and infrastructure, and the invaluable entrepreneurial talent that organizes and manages these inputs.
These economic resources can be further categorized into four primary types:
- Labor: The physical and mental efforts of human beings in production and distribution, rewarded with wages.
- Land: The natural resources and free gifts of nature used in production, with rent as the reward for their services.
- Capital: The manufactured inputs, such as equipment and machinery, that can be used to produce other goods and services, earning interest as their reward.
- Entrepreneurship: The unique human talent that organizes and manages the other factors of production, taking on the risks and uncertainties, with profit as the compensation.
Understanding the distinctions between these resource types and their economic characteristics is crucial in navigating the complex web of production, distribution, and consumption that shapes our society. As we explore the dynamics of these resources, we will gain a deeper appreciation for the fundamental economic challenge of scarcity and how it drives the decisions and tradeoffs that define our economic landscape.