Economic and productive resources and factors of production

Resources and factors of production include several groups. These are natural, investment, labor, etc.

Natural

• Minerals.
• Land.
• Water resources.

The natural factor of production allows us to determine how much environmental conditions affect the course of production processes, how various natural sources of energy and raw materials, minerals, an air basin and many others are used in production. The natural environment as a resource and production factor provides for the possibility of using various types and volumes of wealth in production, which are converted into raw materials, which are then used for the production of various material and material products.

How important are they?

For all the importance, as well as the significance of the natural factor regarding production, it becomes a more passive factor compared to capital and labor. The thing is that various natural resources, mostly predominantly raw materials, are gradually turning into materials, and then they become the main means of production, which subsequently already begin to be used as especially active creative factors. For this reason, in a number of factor models, natural resources and production factors as such are often not explicitly provided for, which does not reduce their significance in the production process.

Investment

• Facilities.
• Building.
• Equipment.

Financial capital, which includes all kinds of bonds, stocks and money, does not apply to economic resources, because they have nothing to do with real production. Capital is included in such resources and factors of production that are directly involved in the manufacturing process of certain products.

What does he happen to be?

As a production factor, capital can be represented in a variety of forms, forms, and in different ways it is measured.

Physical capital is the main means of production, but it will be legitimate to combine it with current assets, which also represent economic resources and factors of production, which are the most important material resources, as well as sources of the company's production activities.

Labor

Labor is a combination of all the mental and physical abilities of people that should be used and are used in the production process of a particular product. The only exception in this case is entrepreneurial ability, which is included in other economic resources and factors of production.

In the production process, the labor factor is the work that all employees of the company perform. The combination of labor with other factors of production is the initiation of the production process. It is worth noting that the labor resources and factors of production in the economy include absolutely all forms and types of labor activity that directs production, and also accompanies it and presents in the form of direct participation in the conversion of a certain energy, information or material. Thus, all participants who are somehow involved in the production process contribute a certain part of the labor to it, and the process of manufacturing products and, of course, the final result directly depend on all this.

Despite the fact that labor resources and factors of production in the economy are directly labor itself, taking into account a rather pronounced resource nature, quite often labor itself is no longer considered labor itself as a waste of a certain mental and physical energy of employees or their working time, but the quantity employed in the production of people or the working population. Using this approach today is most often found in various macroeconomic models.

In addition, it is important to understand that labor resources and factors of production, their classification and units are reflected not only in the number of employees, but also in labor costs, but also to a lesser extent also in the quality and efficiency of workers and their labor productivity. In real calculations, this represents a consideration, in addition to the magnitude of the labor factor, of such a parameter as its productivity.

Entrepreneurial ability

Entrepreneurial ability is the ability to make responsible business management decisions, introduce innovative technologies, and also be able to organize production. The resources, factors and costs of production should be used extremely competently in the process of business development, and it is the chief manager and the persons appointed by him that must manage all these processes.

The entrepreneur must fulfill the four most important functions:

• The initiative on the rational use of several resources in a single process for the production of services and goods.
• Accomplishment of tasks related to making basic business decisions.
• The introduction of innovative technologies, that is, the use on a commercial basis of some new types of products, forms of business organization and advanced technologies on which the concept of production will be based. Resources and production factors in this case will be aimed at ensuring maximum quality and profit from the sale of new products.
• Such a specialist risks not only his own time and reputation in the business world, but also invested finances.

In a modern market economy, resources ultimately bring their owners income in the form of rents and interest. The income of those people who provide labor services is called wages, while the income of an entrepreneur is called profit.

Other economic resources, factors of production should also be noted. Their classification is called the scientific and technical level of production, and by their economic nature in this case the degree of technical as well as technological perfection of the production chosen by you is indicated.

Market of economic resources

Until recently, it was decided to pay as much attention as possible to the maximum possible understanding of supply and demand for a particular product, as well as to study the behavior of firms that produce these products in different market structures.

However, today many understand that for the manufacture of any type of marketable product or the provision of services, a company must use economic resources and needs, the production factors of which are directly or indirectly present in households. The study of the specific features of supply, demand, and pricing is also quite important in understanding the current situation in the economics of processes.

The value of the market of factors of production

It is worth noting several reasons why the importance of the market of factors of production is determined:

• First of all, those prices that are present on the resource market determine the quantity economic costs of any enterprise existing today, in connection with which the volume of market supply in the market of one or another finished product also changes.
• Secondly, the prices of types of resources and factors of production represent the most important factor in the formation of monetary approaches in modern households, which are manifested in rent, interest and profit, wages and other factors, in connection with which the demand for products is also determined.
• Thirdly, the correct operation of the market of factors of production ensures a more efficient distribution of economic resources between various economic entities, and therefore the opportunity costs of one or another type of finished product are minimized.

In contrast to the market of fully finished products, in which demand is presented by households and companies form a supply, the resource market is different, and the relationship of resources and factors of production becomes different. In this case, households offer those economic resources, factors of production and their classification that are present in their presence, as a result of which they become subjects of supply, while companies procure the resources they need and are subjects of demand.

Demand and production in the resource market

Demand for various production resources and factors of production is presented by those companies that manufacture this or that product. The demand for various economic resources in this case is determined by the amount of resources that the company is ready to buy at current prices at this time and in this place.

Unlike the demand that is available for finished products, the demand for resources is derivative, since it depends not only on how much the resources cost for the production of a given product, but also on demand and prices for it.

What factors determine the demand for resources?

If we consider the most important resources and factors of social production, with the help of which it would be possible to determine the demand for certain types of resources, it is worth noting a few:

1. Demand for finished products that are manufactured using this resource. It is quite obvious that the more popular the product will be, the more the company will be interested in its stable production, and the more resources it will need to manufacture. At the same time, the demand for a resource that is used in the production of unnecessary goods by anyone will tend to zero.
2. Performance. The resource productivity is determined depending on the assessment of its marginal product. If using this resource provides higher productivity, then, ceteris paribus, there will be much more demand for it compared to resources that provide low productivity.
3. Cost. All other things being equal (and primarily with a constant price for substitute resources), a decrease in the cost of a resource in accordance with the basic law of demand can increase demand for it, and its appreciation at the same time, on the contrary, will decrease the demand.
4. Marginal revenue for the company. If all other characteristics of the resource in question remain unchanged, the higher will be marginal revenue companies, the higher will also be the marginal product of the resource in monetary terms. In other words, the profitability of a particular resource changes, therefore, the company's demand for it increases.
5. The cost of other resources. In contrast to the market for finished products, price adjustment for other resources can cause completely opposite effects - output and substitution.The degree of influence of each of them directly depends on which group the considered resources belong to - complementary, neutral, or replacing:

• neutral ones have an extremely low influence on the market of the main factor, and this influence tends to zero;
• substitutes are intended to satisfy the similar requests of the manufacturer, as a result of which they can be called competitors for the main factor;
• complementary are used in the manufacturing process of the product along with the main factor in those proportions that are determined by the process.

For example, suppose that capital and labor act as resource substitutes.

If for some reason the price of labor rises, then as a result, the producer may become interested in replacing a more expensive resource with a cheaper one, as a result of which the substitution effect will help increase the demand for capital.

In parallel, an increase in the price of labor can provoke a corresponding increase in total production costs, as a result of which the supply of finished products is reduced, and the demand for all the resources used is reduced completely. In this case, the effect of the volume of production will provoke a decrease in demand for capital.

The actual impact of changes in labor costs on capital demand will depend on the ratio of the effects discussed above. If both capital and labor are complementary resources that are used in strictly defined proportions, then in this case will not be observed substitution effect and in this case on capital market only the effect of output will have an effect. In other words, an increase in the cost of labor will provoke a decrease in the demand for capital.

What factors determine the elasticity of demand?

There are also several factors that determine the elasticity of demand:

• The presence and availability to consumers of various substitute resources. If the resource has a sufficiently large number of quality substitutes, then in this case a sufficiently high elasticity of demand for it will be observed, because any increase in cost will force the manufacturer to significantly reduce demand, as well as use alternative factors of production. And, on the contrary, if a certain resource does not have serious substitutes, then in this case one can observe stable demand for it.

• The amount of costs for this resource. Other things being equal, the smaller the amount of total costs for a particular resource, the lower the elasticity of the company's demand for it.

• Period of time. Other things being equal, the shorter the time period is taken into account, the smaller the parameter of elasticity of demand for specific resources will be. It is quite obvious that in a short time it is not so easy for a manufacturer to adapt to rising prices, and also to find any substitute resources.

• The elasticity of demand for the final product. When the cost of those products that are characterized by elastic demand decreases, there is a significant increase in sales and, consequently, an increase in demand for resources. For this reason, ceteris paribus, the higher the elasticity of demand for the final product, the greater will be the elasticity of demand of the resource that is used in the manufacturing process.