Resource categories

22 Apr

   By economic resources we mean all natural, human, and manufactured resources that go into the production of goods and services. That includes all the factory and farm buildings and all the equipment, tools, and machinery used to produce manufactured goods and agricultural products; all transportation and communication facilities; all types of labour; and land and mineral resources. Economists classify all these resources as either property resources—land and raw materials and capital—or human resources— labour and entrepreneurial ability.

   Land means much more to the economist than it does to most people. To the economist land includes all natural resources—all “gifts of nature”—that are used in the production process, such as arable land, forests, mineral and oil deposits, and water resources.

   Capital (or capital goods or investment goods) includes all manufactured aids used in producing consumer goods and services—that is, all tools, machinery, and equipment, and factory, storage, transportation, and distribution facilities. The process of producing and purchasing capital goods is known as investment.

   Capital goods differ from consumer goods in that consumer goods satisfy wants directly, while capital goods do so indirectly by aiding the production of consumer goods. Note that the term “capital” as used by economists does not refer to money, but to real capital—tools, machinery, and other productive equipment. Money pro­duces nothing; it is not an economic resource. So-called “money capital” or “finan­cial capital” is simply a means for purchasing real capital.

   Labour is a broad term for all the physical and mental talents of individu­als available and usable in producing goods and services. The services of a logger, retail clerk, machinist, teacher, professional football player, and nuclear physicist all fall under the general heading “labour.”

Entrepreneurial Ability
   Finally, there is the special human resource, distinct from labour, that we label entrepreneurial ability. The entrepreneur performs several functions:

  • The entrepreneur takes the initiative in combining the resources of land, capi­tal, and labour to produce a good or a service. The entrepreneur is the driving force behind production and the agent who combines the other resources in what is hoped will be a successful business venture.
  • The entrepreneur makes basic business-policy decisions—those non-routine deci­sions that set the course of a business enterprise.
  • The entrepreneur is an innovator—the one who commercializes new products, new production techniques, or even new forms of business organization.
  • The entrepreneur is a risk bearer. The entrepreneur in a market system has no guarantee of profit. The reward for the entrepreneur’s time, efforts, and abili­ties may be profits or losses. The entrepreneur risks not only his or her invested funds but those of associates and stockholders as well.Because these four resources—land, labour, capital, and entrepreneurial ability— are combined to produce goods and services, they are called the factors of production.

New Terms:
  The land, labour, and entrepreneurial ability that are used in the production of goods and services.
  Natural resources (“free gifts of nature”) used to produce goods and services.
  Human-made resources (build¬ings, machinery, and equipment) used to produce goods and services.
  Spending for the production and accumulation of capital and addi¬tions to inventories.
  The physical and mental talents and efforts of people that are used to produce goods and services.
  The human resources that combine the other resources to produce a product, make non-routine decisions, innovate, and bear risks.


6 Responses to “Resource categories”

  1. J. Boudreaux July 13, 2012 at 12:33 AM #

    Very interesting posting.

  2. J. Boudreaux July 13, 2012 at 12:37 AM #

    Very interesting posting.

  3. ineedamom July 19, 2012 at 8:19 PM #

    Well thank you for that lesson! I’m saving this info! God bless you dear…

  4. ARvWD July 23, 2012 at 3:28 AM #

    Errrr … listen , JD, I know financial capital is an intangible or invisible (you can’t touch it, let alone eat it), but it does have a useful function: it is an agreed store of value, in whatever form that takes. And your stockholders, for example, certainly hope it produces something, viz a return on their financial investment. Indeed, almost no business can start up or survive without both working capital and investment capital; fact, whether you like it or not. I know bankers are out of favour, but it doesn’t follow that banking services are illusory. Would you agree?

    • justdan93 July 23, 2012 at 12:56 PM #

      I agree with you.Banking system in this case won’t be illusory. They’ll give you the amount of money you need, but it won’t be very large, since your firm may not give that amount of revenue as a payback after investment!

      • ARvWD July 23, 2012 at 2:58 PM #

        Well if I were the banker, I wouldn’t lend the money unless I was very sure that the firm WOULD make back the principal of the loan, plus interest within the agreed time. And of course enough to cover all costs, profits, and hopefully dividends to shareholders …

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