Resources - American businessResources, also referred to as factors of production, are the inputs used in production of goods and services. Economists typically categorize resources into three groups: human, natural, and capital. Human resources include physical and mental labor and entrepreneurship, the actions people take in organizing and creating risk-taking enterprises. Natural resources include minerals, land, water, and forests. Capital resources include buildings, machinery, and human capital, the investments in training and education that increase labor productivity. Economists also differentiate between renewable resources and nonrenewable resources (those that cannot be replenished). Control of land, mineral, and human resources has been a major factor in most of the world’s wars and revolutions over the last 500 years.
The abundance or scarcity of resources combined with the demand for particular resources determines their market prices. In the circular flow model of capitalist economic systems, households control most resources (the source of supply). Businesses purchase resources (the source of demand) in order to produce goods and services for the marketplace. Those businesses that provide what consumers want and need are able to purchase additional resources and grow, while those businesses that do not use resources efficiently will decline or disappear. The 18thcentury Scottish philosopher, Adam Smith, described the process of resource (and product) allocation in a market system “as if guided by an invisible hand,” producing a result not intended by businesses or consumers. This is known as economic efficiency.
Control and allocation of collective resources presents a difficult issue. In a socialist economic system, most resources are owned and allocated by the governing group. Even in capitalist economic systems, numerous resources are collectively controlled and allocated. In many countries, mineral resources such as oil and natural gas are collectively owned. Decisions regarding extraction and use of these nonrenewable resources are a source of debate and are influenced by current prices and the opportunity costs of not selling them.
Decisions regarding collectively owned renewable resources face the problem of sustainable development, limiting the resource’s utilization and harvesting so that it will be available and productive in future time periods. Resource managers have devised many different methods to conserve renewable resources. For example, fisheries managers limit the harvesting season, the type of equipment used, and the number of licenses available in order to prevent resource depletion. For decades Long Island Sound oyster harvesters working public beds were restricted to using two-foot-wide dredges operated under sail power. Economists refer to this as institutionalized inefficiency.
Resource allocation is also illustrated in production-possibilities curves. Only when resources are achieving their most productive uses will an economic system be operating along its production-possibilities curve. Changes in technology frequently influence the productivity and demand for resources. Often technological advances reduce or eliminate the demand for resources. A classic example is the whaling industry. Whalers searched dangerous and distant places for whales to make whale oil until the development of oil-refining technology made them obsolete. One of the challenges for workers, particularly college students, is the fact that by the time they finish college, “hot” job markets are often saturated with new workers (resources), limiting opportunities for new entrants.
See also capitalism; sustainable growth and development; socialism.