Economic Resources

Aug 09, 2017 06:39 pm

Economic Resources

Factors of Production
Labor, capital, land, and entrepreneurship are used by society to produce consumer satisfying goods and services. Factors of production are also termed resources or scarce resources.

All four factors of production categories are important to the production of goods used in the wants-and-needs-satisfying process that keeps human beings alive from one day to the next and makes living just a little more enjoyable. Land provides the basic raw materials that become the goods. Labor does the hands-on work. Capital is the tools that makes the job easier. And entrepreneurship organizes the entire process.

Four Resource Inputs


The production of any good or service inevitably requires four types of inputs. To see these inputs, consider a house being built by the Clint Cobblemeyer Construction Company.
First is a large number of workers. This includes the carpenters, electricians, concrete workers, plumbers, roofers, painters, and everyone else who hammers, saws, welds, digs, and performs the assorted tasks need in the construction process.

Second, is the tools used by workers. This includes hammers, electric saws, screw drivers, delivery trucks, scaffolding, paint brushes, shovels, and other equipment.

Third is the materials. This includes lumber, nails, screws, concrete, paint, roofing shingles, carpet, wallboard, bricks, and everything else that becomes the house.

Fourth, is the organizer. This is the person, Clint Cobblemeyer, who makes the decision to build the house in the first place and then brings together the materials, workers, and tools needed to get the job done.

Let's get specific and formal for each of the four resource categories.

Labor
Labor is the mental and physical efforts of humans (excluding entrepreneurial organization) used for the production of goods and services. Labor includes both the physical effort of factory workers and farmhands often associated with labor, as well as the mental effort of executives and supervisors.

Capital
Capital is the manufactured, artificial, or synthetic goods used in the production of other goods, including machinery, equipment, tools, buildings, and vehicles. Capital is the produced factor of production. This factor must be produced using other factors of production, which means that society is often faced with the choice between producing consumption goods that satisfy wants and needs and capital goods that are used for future production.
Without capital, labor would do ALL production "by hand." The key role of capital in the production process is to make labor more productive. While a covey of construction workers might be able to fabricate a four-bedroom house with nothing but bare hands, an assortment of hammers, saws, and other tools is bound to make their work easier and more productive.

Land
Land is the naturally occurring materials of the planet that are used for the production of goods and services, including the land itself; the minerals and nutrients in the ground; the water, wildlife, and vegetation on the surface; and the air above. The natural resources and materials of the land become the goods produced. Without these materials of the land, there is no production. Production is, in fact, the basic process of transforming naturally occurring materials that provide little satisfaction in their natural state, to goods and services that provide more satisfaction.

Entrepreneurship
Entrepreneurship is the special sort of human effort that takes on the risk of bringing labor, capital, and land together to produce goods. Entrepreneurship is the factor that organizes the other three. Without someone to organize production, the other three factors do not produce. A key component of entrepreneurship is risk. This resource takes the risk of organizing production before anything is produced and with no guarantee that production will be successful.

Productivity
In economics, a measure of productive efficiency calculated as the ratio of what is produced to what is required to produce it. Any of the traditional factors of production — land, labour, or capital — can be used as the denominator of the ratio, though productivity calculations are actually seldom made for land or capital since their capacity is difficult to measure. Labour is in most cases easily quantified — for example, by counting workers engaged on a particular product. In industrialized nations, the effects of increasing productivity are most apparent in the use of labour. Productivity can be seen not only as a measure of efficiency but also as an indicator of economic development. Productivity increases as a primitive extractive economy develops into a technologically sophisticated one. The pattern of increase typically exhibits long-term stability interrupted by sudden leaps that represent major technological advances. Productivity in Europe and the U.S. made great strides following the development of such technologies as steam power, the railroad, and the gasoline motor. Later in the 20th century, advances in productivity stemmed from a number of innovations, including assembly lines and automation, computer-integrated manufacturing, database management systems, just-in-time manufacturing, and just-in-time inventory management. Increases in productivity have tended to lead to long-term increases in real wages.

Input
The resources or factors of production used in the production of a firm's output. This term is most frequently associated with the analysis of short-run production, and is often modified by the terms fixed and variable, as in fixed input and variable input. In the short run, the quantity of a fixed input can not be changed, meaning it can not be used to expand output. In contrast, a variable input can be changed, making it THE means of expanding output in the short run.

Output
Output is a generic term for a tangible good or an intangible service that is the end result of the production/resource transformation process. This notion of output, which also goes by the alias product, usually surfaces in the context of analyzing the short-run production of a firm. The short-run relation between a variable input and output is of particular interest because it reveals the law of diminishing marginal returns. This law indicates that additional quantities of a variable input, when added to a fixed input, have decreasing marginal products, or marginal returns.
Factors of production
The four basic factors used to produce goods and services in the economy--labor, capital, land, and entrepreneurship. These are also called resources or scarce resources. The term "factors of production" is quite descriptive of the function these "resources" perform. Labor, capital, land, and entrepreneurship are the four "factors" or items use in the "production" of goods and services. So there you have it "factors" of "production."

Land
One of four basic categories of resources, or factors of production (the other three are labor, capital, and entrepreneurship). This category includes the natural resources used to produce goods and services, including the land itself; the minerals and nutrients in the ground; the water, wildlife, and vegetation on the surface; and the air above.
The naturally occurring resources used in the production of goods and services, including the land itself; the minerals and nutrients in the ground; the water, wildlife, and vegetation on the surface; and the air above. Land also includes the productive dimensions of space and accessibility. This is one of four basic categories of resources, or factors of production. The other three are labor, capital, and entrepreneurship.
Land is, first and foremost, the source of all materials used to produce tangible goods. This resource category includes everything that is transformed by labor, capital, and entrepreneurship into more valuable goods. Without land, there are no goods.

Three Productive Dimensions
Land actually has three productive dimensions. In addition to the naturally occurring materials, land also provides space and accessibility.

1. Materials
The obvious dimension of land is the provision of naturally occurring materials, the materials that provide the "substance" of tangible products. The materials needed to build a house, for example, include lumber for the walls, asphalt shingles for the roof, plastic pipe for the plumbing, and copper wire for the electrical system. All of these materials originate with the land--vegetation growing on the land, and minerals found in the ground. No land, no raw materials, no goods.

2. Space
A second, not so obvious, dimension of land is space. In other words, land provides a place to "put things." Every THING needs to be some PLACE, with emphasis on the word PLACE. Land is the resource used for this storage function. The spatial storage aspect of land is often augmented with capital (for example, a warehouse), but it begins with land. Land, for example, provides the space, the surface area, to construct a house.

3. Accessibility
The third, and also somewhat obscure, dimension of land is location or accessibility. Everything is located relative to other things. Some are closer, some are farther away. Closer locations require fewer scarce resources (and thus incur less opportunity cost) for transportation. Because resources are used to transport as well as to transform, accessibility and close location reduce the opportunity cost of transportation. A house that is located closer to school, work, and shopping is usually preferred because transportation cost is less.