2. Economic Resources Lesson 2

3. Economic Resources n Economic resources can be referred to as factors of production (or inputs) n Factors of Production äLand Renewable resources Non-renewable resources äLabor äCapital äEnterprise

4. Economic Resources n An economic resource is Scarce (not unlimited) Produced with resources Has an opportunity cost n The are four types of economic resources.  We call them the factors of production – the resources we use to produce goods and services

5. Economic Resources n Factors of Production äLand äLabour äCapital äEnterprise

6. Economic Resources Land – includes all of the natural physical resources äLand covers all natural resources Oil Farmland Minerals (gold, iron, copper, tin) Fish New ZealandCanadaAustralia Forests (trees) Wind Rain (water)

7. Economic Resources n There are two types of land resources äRenewable resources äNon-renewable resources

8. Economic Resources Renewable resources – replaced automatically by nature and so can be used forever äExamples Solar energy Fish Trees Rivers Wind power

9. Depletion of Natural Resources n Important!!! äIf we use renewable resources faster than nature can replace them, then they will become extinct Collapse in the size of many fish stocks worldwide including the North Sea Deforestation

10. Economic Resources Non-renewable resources – are not automatically replaced by nature and so cannot be used forever äExamples Oil Coal Natural gas Minerals (gold, copper, tin)

11. Economic Resources n The mobility of land äIt is difficult and often impossible to move land resources You cannot move farmland from one part of China to another country. äHowever, land can often be easily converted from one use to another use You can easily stop using land for farming and build houses on it äLand itself is geographically immobile but occupationally mobile

12. Economic Resources n Quantity and quality of land äThe quantity of land SPACE and its quality does not change much over time We can cause the quality of some land resources such as rivers to decrease easily (as happens during industrialization) The quantity of land resources such as oil does decrease over time as we use more of it

13. Economic Resources Labour – the human input into the production process äIt consists of all human effort Physical effort Mental effort

14. Labor-intensive activity Asia-Pacific Rim countries Hong Kong Taiwan Singapore South Korea Malaysia

15. Economic Resources n QUESTION: Which of the jobs in these pictures require physical effort? Which ones require mental effort? A B C

16. Economic Resources n Quantity and Quality of Labour äQuantity of labour refers to how many workers are available (or how many hours of work are available) The quantity of labour in a country would be increased by a rise in the retirement age or an increase in immigration äQuality of work refers to productivity of a worker The quality of labour is improved by training and education

17. Economic Resources n The productivity of a worker refers to how much output per hour a worker produces äProductivity is increased by Human capital (education, training) Physical capital Technology

18. Economic Resources n The mobility of labour äGeographical mobility äOccupation mobility – the ability of labour to move freely from one job to another. n Higher mobility increases economic efficiency. Why? älabour mobility are limited by People ’ s social ties (don ’ t want to move far from family) Lack of information about jobs far away differences in the price and availability of housing in different locations Government travel restrictions (domestic or international) such as visas Lack of skills, education, training

19. Economic Resources n In recent years the issue of the migration of labour has become important äMigrant workers help solve labour shortages domestically and internationally It is estimated that there are several million migrant workers traveling around China for work. Why don ’ t they stay at home? –What benefits do they provide? –What problems do they cause?

20. Economic Resources äThe U.S., E.U. and other developed countries have many migrant workers from poorer countries in Latin America, Asia, Africa, and the Middle East, both educated and uneducated. äMany highly (and poorly) educated people want to migrate to the U.S. for work, but often face severe restrictions. What does this do the the competitiveness of U.S. companies and the U.S. economy? Why would the U.S. restrict migrant workers?

21. Economic Resources One problem facing some poor countries is the brain drain – the emigration of many of the most highly educated workers to rich countries. People from poor countries with a valued education can often earn far greater incomes by moving to rich countries. What are the long term effects of brain drain?

22. Economic Resources Capital – man made resources used to produce other goods and services äEconomists usually mean physical capital, not human capital, when they say capital. äIMPORTANT! Capital (in Economics) does NOT include financial capital –Financial capital includes money, stocks, bonds and other financial assets

23. Capital inputs n The oil industry is a good example of an industry which is capital intensive from extraction through to retailing of petroleum products

24. n Capital-intensive activity Japan EuropeNorth America

25. Economic Resources äFactories äOffices äWarehouses äRailways äMachines äPower stations äLorries (big trucks) äProcessed raw materials äHospitals äSchools äRoads äAirports äSeaports äBridges Examples of capital (physical capital)

26. Economic Resources Consumer goods – goods which give immediate satisfaction äExamples of consumer goods Pizza Eggs Shoes Pants TV Basketball

27. Economic Resources n What is the difference between capital (physical capital) and consumer goods? äCapital goods are used to produce product; they do NOT provide immediate satisfaction äConsumer goods provide immediate satisfaction

28. Economic Resources n Working Capital and Fixed Capital äWorking Capital refers to stocks of finished and semi-finished goods (or components) that will be either consumed in the near future or will be make into finished consumer goods.

29. Economic Resources n Working Capital and Fixed Capital  Fixed Capital – factories, offices, machines (they will not be made into other goods or sold).

30. Economic Resources n The mobility of capital (physical capital) äSome capital goods are physically mobile (such as lorries [big trucks]), but others like power plants are not äSome capital goods are occupationally mobile (they can be used for the production of many goods [an office or copy machine]), but others are not (construction cranes)

31. Economic Resources n The quantity and quality of capital (physical capital) äThese are both increased by investment äThe quality of capital goods is improved by advances in technology äThe opportunity cost of investment is that you must have less consumer goods. Why? To increase the quantity of capital goods may involve opportunity cost in terms of consumer goods

32. Economic Resources Enterprise – personal initiative to combine resources in productive ways. Involves risk. äEntrepreneurs will usually invest their own financial capital in a business and take on the risks associated with a business investment äThe entrepreneur organizes the other factors of production in ways that benefit other people  In return for having innovative business ideas and taking the risk in putting funds into a business the entrepreneur takes any money that the business has left (profit) after the other factors of production have received their rewards n The key functions of the entrepreneur are to bear risks and organize other economic resources

33. Entrepreneurs

34. Economic Resources FactorDescriptionReward Land All natural resources (gifts of nature) including fields, mineral wealth, and fishing stocks The reward for landlords for allowing firms to use their property is rent Labour The physical and mental work of people whether by hand, by brain, skilled or unskilled The reward for workers giving up time to help create products is wages or salaries Capital Man made goods used to produce more goods including factories (plant), machines and roads. The reward for creditors lending money to firms to invest in buildings and capital equipment is interest Enterprise An entrepreneur risks financial capital and organises land labour & capital to produce output in the hope of profit The reward for individuals risking funds and offering products for sale is profit.Unsuccessful firms make losses.

35. Economic Structure Primary sector – industries that extract raw materials and food äExamples: agriculture, coal mining, fishing, forestry Secondary sector – This involves the production of goods in the economy, i.e. transforming materials produced by the primary sector ämanufacturing, building, publishing, chemicals, toys, jewelry, housing, etc. Tertiary sector – services äExamples: banking, finance, insurance, retail, education and transport and tourism