Economic Resources (AQA A Level Economics)

The Factors of Production

• Factors of production are the resources used to produce goods and services

  • Land, labour, capital and enterprise

• The production of any good/service requires the use of a combination of all four factors of production

  • Goods are physical objects that can be touched (tangible) e.g. mobile phone

  • Services are actions or activities that one person performs for another (intangible) e.g manicure, car wash
     

The Four Factors of Production

Some of the Factors of Production Required to Produce a Motor Car

• In a free market economic system, the factors of production are privately owned by households or firms

  • Households make these resources available to firms that use them to produce goods/services

  •  Firms purchase land, labour, and capital from households in factor markets

• Households receive the following financial rewards (factor income) for selling their factors of production

  • The factor income for land → rent

  • The factor income for labour → wages

  • The factor income for capital → interest

  • The factor income for entrepreneurship → profit

The Environment as a Scarce Resource

• Environmental resources are raw materials that come from nature, e.g. gas, water, soil, wood

  • It is the land used to produce goods and services as part of the factors of production 

• Increased economic activity causes the degradation of environmental resources.This is where current generations overconsume and produce, resulting in resources becoming scarce. They are being destroyed for use for future generations

  • Non-renewable resources (eg. coal or oil) are already limited in supply and will run out quickly 

  • Renewable resources (e.g. water and air) should be infinite in supply

    • Resources such as clean water will eventually run out if not treated properly by current generations. This makes the supply scarce

• This gives rise to the concept of sustainability, which means meeting the needs of current generation without compromising the needs of future generations