Economic Survival: Resources, Production, and Scarcity
Have you ever entered a large store such as Wal-Mart and marveled at the thousands of things you can buy? Where did all of the products on the shelves come from? How did they get there? Why are there certain kinds of products and not others? Who decides what price to charge? One thing is certain — the products don’t appear by accident. They have to be produced, and then they have to be delivered to the store for you to buy. The subject of economics will help you understand how all of this takes place.
Productive Resources: What We Need to Produce Goods and Services
What does it take to produce a product, such as a pair of jeans? Well, economists will tell you that it takes resources, productive resources to be exact. That’s a mouthful, but it’s really not that difficult. There are three basic productive resources: natural resources, human resources, and capital resources. Natural resources are things such as minerals, water, trees, and the land itself. Several types of natural resources are used to make a pair of jeans. It takes land to grow cotton. It takes minerals to produce the metal for the zipper and buttons. Can you identify any other natural resources needed to produce blue jeans?
Human resources, or labor, refers to the human effort used in production. Think of all the kinds of human resources it takes to make a pair of jeans! Farmers, truck drivers, factory workers, secretaries, and many others are all important in the production process.
Capital resources refer to the buildings, machines, tools, and equipment used in production. It takes an incredible amount and variety of capital to make a pair of jeans. In fact, it would be impossible to make blue jeans without using some kind of capital. What kinds of capital would you need?
Many economists also list a fourth basic productive resource — entrepreneurship. This refers to the skill, foresight, and determination it takes to start a business and produce a product. Entrepreneurs purchase natural, human, and capital resources and use them to produce goods and services. The entrepreneur hopes that many consumers will buy the goods and services so that he or she can make a profit. Entrepreneurs are the “risk-takers” in the production process.
Scarcity: There’s No Such Thing as a Free Lunch (or a Free Pair of Jeans!) When you go shopping, why does it take money to get a pair of jeans? In fact, why does it take money to get just about anything? The reason is that the productive resources used to produce goods and services, including jeans, are limited, but human wants for goods and services are virtually unlimited. This creates the condition that economists call scarcity. A good, service or productive resource is scarce if there is not enough to satisfy all that people want — at a zero price.
For example, how long do you think jeans would remain on the clothing racks at a department store if they were free? Right! Not very long! What about hammers, if they were free? Right again! Not very long! Everyone would rush to get them. At a zero price, there would not be enough for everyone to have all that they want. Bluejeans and hammers are scarce. Can you think of anything that is not scarce?
Because jeans and hammers are scarce, people are willing to pay to get them. It’s a good thing, too. The money that people pay for the jeans is what motivates the entrepreneur to produce them. After all, the entrepreneur could produce other things with his or her productive resources, such as tennis shoes, pizza, or maybe tents for camping.
Opportunity Cost: Every Choice Has One!
Economists use another fancy term you need to know — opportunity cost. When you make a decision, your opportunity cost is the value of your best alternative. For a producer, the opportunity cost of producing a particular good or service is what is given up by not producing the best alternative.
Suppose that an entrepreneur named Mr. Jones believes that blue jeans and tennis shoes are two products that consumers really want to buy. However, because the productive resources needed to produce blue jeans and tennis shoes are limited, Mr. Jones cannot produce both. If he produces tennis shoes he cannot produce blue jeans. The blue jeans would be his opportunity cost. If he decides to produce blue jeans, then he cannot produce tennis shoes. The tennis shoes would be his opportunity cost. It’s important to realize that there is an opportunity cost to every producer’s decision.
More or Less Scarce: Why Tiger Woods is a Millionaire One more point and then you can get busy and answer the questions. Even though all productive resources are scarce, some are more scarce than others. This is pretty much common sense. Oil is more scarce than sand. A doctor is more scarce than a factory worker. A tractor is more scarce than a hammer. As you might guess, the more scarce something is, the higher its price. A productive resource that is very scarce has a higher price than one that is not very scarce. This is why Tiger Woods gets paid so much for his work as a golfer. His talent is very scarce indeed!