Economic Resources – 3 Factors of Production – Easy

What are Economic Resources?

Economic Resources consist of land (natural resources), capital (human-made resources), and labor (human resources). They are also called “Factors of Production”. These resources are not free. They command a price because they are scarce and are essential to the production of goods and services.

In other words, they are the inputs that are used to create goods or help you provide services. These are the inputs that an economy uses to produce and distribute goods and services. The precise proportion of each factor of production will vary from product to product and from service to service, and the goal is to make the most effective use of the resources that maximize output at the least possible cost. Misallocation or improper use of resources may cause businesses, and even entire economies, to fail.

Economic Resources
Economic Resources

Types of Economic Resources

  • Land (Natural Resources). The land consists of an economy’s natural resources, “gifts of nature” such as minerals, forests, rivers, and agricultural land. Owners of land receive rental income when it is used to produce goods or services.
  • Capital (Human-Made Resources). Capital consists of human-made resources which include tools, equipment, machinery, buildings, and transportation networks and that are used in and/or facilitate the production of goods and services.
    • Financial Capital consists of financial investments, such as savings accounts, bonds, and stocks, which come into being when individuals save and then lend this savings for the creation of tools, equipment, machinery, and so on.
    • Capital resources are classified as real capital to differentiate them from financial capital. The owner of real capital receives an interest return.
    • Fixed Capital. It includes new technologies, factories, buildings, machinery, and other equipment.
    • Working Capital. It is the stock of finished goods or components or semi-finished goods or components. These goods or components will be utilized in near future.
    • Capital Productivity. New features of capital building, machinery, or technology are commonly used to improve the productivity of the labor. Such as the new ways of farming helps to enhance the productivity of the agriculture sector and give more valuable jobs in this sector which motivates people to come out for work.
    • Infrastructure. It is a stock of capital that is used to maintain the whole economic system. Such as roads, railway tracks, airports, etc.
  • Labor (Human Resources). Labor consists of human beings who possess a wide array of skills that are needed to process goods and services. The skills of labor vary, ranging from the relatively lower-skilled talents of a supermarket checkout clerk to the skills of a highly trained surgeon. Since some labor skills are scarcer and more productive than others, individuals who possess specialized skills which are in high demand receive greater compensation.
    • An Entrepreneur is a person or individual who wants to supply the product to the market, in order to make a profit. 
    • Entrepreneurial ability is a very special labor skill. An entrepreneur is a person who forms a firm, hires economic resources, and produces goods or services that society wants. While labor resources receive wages, an entrepreneur’s payment consists of profit earned by forming and managing a profitable firm.
    • Following are the factors of entrepreneurship:-
      • Income
      • Wealth
      • Labor and Wages
      • Capital and Interest
      • Profit and Enterprise
    • The work capacity of each worker is based on his own training, education, and work experience. This work capacity is matters in the size and quality of the workforce. To achieve economic growth, the rise in the quality and size of the workforce is very essential.
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Definition of Economics in Resources Term

Economics is the study of using resources effectively and efficiently in order to produce goods and services to satisfy human needs and wants.

Multiple Choice Questions – Economic Resources

  1. Which of the following statements about factors of production is false?
    • The term ‘factors of production is another term for resources.
    • The factor of production termed labor means human resources.
    • The factor or production termed land means natural resources.
    • The factor of production termed capital means the money which the owners of firms need in order to set their firms up.
  2. The fundamental concept of Economics about resources is that the resources are
    • equally distributed
    • unequally distributed
    • scarce
    • unlimited
  3. Consider a world without scarcity of resources. Then what would be the consequences?
    • All prices would be zero
    • Markets would be unnecessary
    • Economics would no longer be a useful subject
    • All of the above
  4. The resources used in the production of goods and services are limited, so society must:
    • Make choices about how to use resources
    • Try to obtain additional resources
    • Reduce their use of resources
    • None of the above
  5. Which of the following is a central problem of every economy
    • Abundance of resources
    • Scarcity of economic resources
    • Poverty
    • Moral and ethical values
  6. In economic theory, the term “means” refers to
    • Resources
    • Arithmetic mean
    • A characteristic
    • None
  7. Economic resources are
    • Unlimited
    • Limited in supply and use
    • Limited in supply but have alternative uses
    • Unproductive
  8. Which of the following is/ are not an economic resource?
    • Land
    • Capital
    • Labor
    • Air
  9. Which of these resources would be called land in economics?
    • Coal mines
    • Water resources
    • Mineral deposits
    • All the three
  10. Scarcity of resources means
    • Limited resources
    • Non-existence of resources
    • Both
    • None
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