1.1.3 Economic resources

4 factors of production

1. land

2. labour

3. capital

4. enterprise

economic resources

• the environment is a scare resource

• ALL economic activity starts & ends with the environment

• we use the environment as a ‘waste sink’ (e.g. pollution in rivers)

factors of production as economic resources

• factors of production are the resources used by firms to produce goods and services

• they are called factor inputs

• firms input these factors into the production process

  • land (Ld)

  • labour (L)

  • capital (K)

  • enterprise (Ent)

    • the factors of production are known as economic resources as they earn reward for their use in the form of rent, wages, interest and profit

  • firms take these resources and turn them into products that they sell for profit

labour

• labour includes all of the workforce in an economy

• every worker is unique

  • we all have different skills, qualifications and experience

• the value of a worker is called its human capital

• a worker can be valued by the income they earn

• education and training are likely to increase our human capital

land

• land (anything that comes from the earth) encompasses all of the natural resources that come from the earth that are used in the production of goods or services

  • this can include resources:

    • below the earth (e.g. oil)

    • on the earth (e.g. crops)

    • above the earth (e.g. air)

    • in the sea (e.g. fish)

capital

• as a factor of production capital refers to the man-made aids that are used in the production process e.g. machinery, tools, factories, offices

• capital goods will bring a stream of income in the future rather than being consumed today (e.g. a car used for leisure purposes is a consumption good, but one used as a taxi is a capital good)

enterprise

• the entrepreneur takes land, labour and capital and organises them in order to produce product that will be profitable

• the skills of the entrepreneur are crucially important to the health of the UK economy

• by taking risks the entrepreneur creates wealth and employment in the economy

• profit is the reward for the entrepreneur

the environment

• the environment is a scarce resource as much of what we use up in economic activity is non-renewable

• therefore we need to use these resources in a sustainable manner

• the market mechanism is used to price resources obtained from the environment