Economic Resources and their types

Resources are the factors which help us producing goods and services that meet human needs and
wants. They are also called factors of production.

Factors of production

1) Land- land includes not only agricultural soil but also the natural resources which are free gift of
natures such as: trees, minerals, metals, oil, water, crops, gems, etc.

2) Labor- it represents all physical and mental abilites which people make available for production of
goods and services. Labor is usually measured by the time spent in working during a period.

3) Capital- refers to man-made resources or production. It includes equipments, factory buildings, all
sorts of tools, machines, roads, dams, buses, trucks, etc. These are often called capital goods which help
in the production of further goods and services. Since capital goods are man-made, they can produce
more every year. In this way, capital formation every year adds to the stock of capital and increase our
capacity to produce goods and services. Capital formation in a year is also called real investment.

4) Entrepreneurship- represents a special human resource which provides entrepreneurial ability.

Entrepreneur plays a crucial role in our free market economy. It is he who initiates and organizes the
production process by combining other resources such as labor, capital, and land. Entrepreneur takes
various business policy decisions and risks of loss from his venture. Introduce innovations such as the
use of new and better technique of production and launching a new products.

Conclusion

These 4 resources are scarce or limited in supply but they have alternative uses. On the other hand,
human wants are unlimited. All wants cannot be satisfied due to the scarcity of resources and this raises
the problem of choice among multiple wants which are to be satisfied.
 The Economic Problem

Economics is the study of choice in a world of scarcity.

Wants are infinite, but the resources available to us are limited.

1. What to produce? In order to satisfy all the wants

2. How to produce? What is the most effective way to maximize production to meet as many of the
wants as we can.

3. For whom to produce? Whos wants are most deserving for us to allocate resources towards

Factors of Production

Allocating Resources
 Study of Economics

Microeconomics – about how individuals, households, and firms address the economic problem. These
are smaller scale issues. They are concerned with specific markets and industries.

Example questions: Does buying milk affect the demand for coffee?

What are the benefits of using money?

Macroeconomics – takes more holistic and broader view of the economy and how government address
the economic problem.
Example questions: How does trading between countries impact individual economies?

Is national debt inevitable or a bad thing?

Why have some people without jobs not included in rates of unemployment?

Positive vs. Normative Economics

Positive Economics

Positive economics is a stream of economics that focuses on the description, quantification, and
explanation of economic developments, expectations, and associated phenomena. It relies on objective
data analysis, relevant facts, and associated figures. It attempts to establish any cause-and-effect
relationships or behavioral associations which can help ascertain and test the development of economic
theories.

Normative Economics

Normative economics focuses on value-based judgments aimed at improving economic development,

investment projects, and the distribution of wealth. Its goal is to summarize the desirability (or lack
thereof) of various economic developments, situations, and programs by asking what should happen or
what ought to be.

What Is an Example of Normative Economics?

Any economic agenda that promotes some sort of social or policy agenda could be said to be normative.
For instance, arguing for a higher minimum wage for the benefit of workers would be an example of a
normative argument, in that this argument is based on subjective values. However, an assertion that
higher minimum wages would lead to a higher GDP would be considered positive economics.
What Is a Positive Theoretical Statement?

A positive statement is one that can establish hypotheses that can be empirically tested. In contrast, a
normative statement is instead based on opinion or subjective values.

Is Positive Economics Better Than Normative Economics?

Both types have their place, and on their own both also have flaws. Integrating positive and normative
economic statements together is often required in order to create the policies of a country, region,
industrial sector, institution, or business.