economic resources lesson 2 economic resources n economic resources can be referred to as factors of...
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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