If economics is all about how people use their scarce resources to try to satisfy their unlimited
wants, then it might be a good idea for us to think about what the term resources actually
means.
When economists talk about resources they mean productive resources.
The resources actually have to be able to produce something -- a product or a service.
So what kinds of stuff do we use to produce goods and services?
We use people, fuel and energy, we use machines, factories, plants, animals...
OK, clearly a lot of things are used in the production of goods and services.
Economists like to simplify things to make the story more intuitive, so what do you say
we put all the resources into just a few broad categories?
Land is any natural resource.
Sure, this includes land -- land like farmland or real estate -- but it also includes trees,
plants, livestock, wind, sun, water, oil... you get the idea.
The category labor refers to any human service- physical or intellectual.
You're adding to the package of labor services that you have to offer, right now, by learning.
Some labor comes naturally; an athletic gift, perhaps, that allows you to play professional
ball to earn a living; but you can certainly add to your package of labor services, sometimes
referred to as human capital, through job training, experience, conferences, workshops,
or education.
The category of capital...
Now before I go one step further, let me say this: money is NOT a resource.
Remember what I said about resources -- they need to be productive.
They have to be used to make something else, and money can't do that.
Don't get me wrong; money helps the economy move along more efficiently, more smoothly,
like grease for the economic machine.
But in and of itself, it can't produce anything.
It's used to acquire the productive resources that can produce goods and services.
This confusion is understandable, since most media refers to financial capital or investment
capital, so it does refer to money.
But what is economic capital?
By definition, economic capital is anything that's manufactured in order to be used in
the production of goods and services.
Well, more simply, capital is machinery and equipment.
This includes factory machinery, but also the factory itself, and computers, furnishings,
books, roads, phone lines, etc.
The last major resource category is entrepreneurial ability.
What, or rather who is an entrepreneur?
An entrepreneur is someone who, first of all, is able to recognize a profit opportunity.
Second, is able to organize the other factors of production- another phrase for resources.
And third, is willing to accept risk.
Look, do you know who Joe Johnston is?
In the late 1980s he and his partner left their engineering jobs and opened up a coffee
shop in downtown Tempe.
Now what you have to realize is that, at that time, the downtown area was, well, shall we
say, a little less than desirable.
It was just prior to the revitalization and renovation of that area.
And, believe it or not, no one had ever heard of a little place called Starbucks, so quite
frankly, I'm sure that people thought that these two guys were nuts -- bad location,
bad product.
Whoever heard of making a living selling coffee in the desert?
Bad idea.
Well, Joe and his partner took the chance, opened that first Coffee Plantation and it
was a hit.
Within a few years they sold it off for millions.
These two guys saw a profit opportunity -- there's 50,000+ caffeine-starved students less than
two miles away!
Come on!
They took the risk and organized the resources to start that business and make it successful.
After selling the Coffee Plantation, Joe went on to other ventures: Joe's Barbecue, Joe's
Farm Grill and, most recently, Liberty Market.
That's entrepreneurial ability, folks!
NEXT TIME: Micro versus Macro.
TRANSCRIPT0EPISODE 3: RESOURCES