Syndicate
Classification of Production Used Resources
You cannot obtain products without consumption of such. Traditionally economists divide supplies, or factors of production, into three different categories, which are:
- Land: This is not only talking about root property, but also about all the resources that are found in nature and that can be used to produce the things that people want to consume. Land includes the climate, vegetable and animal life, geothermal energy and the electromagnetic spectrum.
- Work: The work people have to do in order to produce things. A tree does not turn into shelves without human intervention.
- Capital: The machines made by man, the tools and the structures that are not directly consumed but are rather used to produce other things that people do consume. An example of this can be a car that you drive for pleasure is consumption good, whereas an identical car that you use to transport cement for a construction business is capital. Capital has to do with factories, streets, roads, electrical infrastructure and so forth.
Besides these three common supplies, economists now use the term human capital, which consists of the knowledge and the abilities that the people use to produce. For example, some people can have a great amount of human capital in relation with economy, while they might not be that great at dancing.
If you put someone to work in something of which they have a high human capital, they will produce a lot more and will make better quality things than a person that has a low human capital, even though both put in the same amount of work at determined times of the day. One important consequence of this is that the qualified (high human capital) workers receive higher pay than the ones that are not qualified (low human capital). As such, one way that societies can become richer is to improve the abilities of their workers through education and training. If societies are able to improve the human capital of their workers, they will not only be able to produce more with the same limited amount of land resources, work and capital, but the workers will also get paid more and will enjoy and even higher standard of life.
Nonetheless, increasing human capital is expensive, and at a given moment it is important to consider their level in society as a fixed factor. The limitation of human capital, combined with a limited amount of land, work and capital, means that society will only be able to produce a limited amount of a product. According to this, the decisions about the best way possible of distributing these limited resources are crucial because those resources must be used for production of goods and services that will provide the most amount of happiness.