What are the scarce resources in economics, and why should society understand what they are? In your economics class, students should clearly understand the concept of scarcity and how it relates to economics. All the students want to know is why labor, capital, natural resources, human capital, and all other forms are scarce in all economies or the world. Time is also a scarce resource captured by labor, natural resources, wealth, and human capital investments.
What are Scarce Resources in Economics?
So what is the meaning of scarce resources? Scarce resources in Economics are all kinds of inputs of production processes needed by society to satisfy the significant needs of the community. There are four broad categories of resource scarcity in an economy:
- Labor as the scarcity of lifetime
- Capital as the scarcity of assets, wealth, and time
- Natural resources as scarce by nature
- Human capital as the scarcity of wisdom
Labor is the Scarcity of Lifetime
Labor is the resource that human beings offer using their lifetime. Indeed, individuals provide their time in the form of different forms of work. Work can, therefore, be in the form of the manual or intellectual creation of things for various forms of consumption. For example, a working student has to allocate some hours of learning (investing in human capital), working and leisure. During their free time, the students could spend time with their family, friends, doing sports, or any other hobby.
In economics, labor is a scarce resource that serves as an input in productions processes. Economists assume that individuals choose between leisure (free time) and labor (working time). So, people either work or spend their free time with leisure activities, but they should also learn. A vast literature of labor economics covers the problems and issues of labor markets. Another branch of literature focuses on leisure economics (how people spend their free time), while others focus on the economics of education.
Capital is the Scarcity of Assets, Wealth, and Time
From the standard economic school, capital includes all assets set aside by society to produce final consumption goods. Think of the balance sheet of a firm and the list of assets ordered by liquidity. That is what represents all assets in an economy that are in use. Remember that the balance sheet also informs you of how the firm funded its assets.
Capital is also a scarce resource in economics and also an input in production processes. One, capital captures the dimension of time in our resource allocation problem in economics. Two, capital also captures the size of wealth within and between societies. A vast literature covers all forms of capital and explains the theories of capital, which we could aggregate to capital economics similar to labor economics.
Natural Resources are Scarce by Nature
Natural resources are natural assets that humans can access by exploiting the earth and universe to produce capital inputs or final consumption goods. Raw goods such as gold, copper, fish, rocks, etc., go into firms’ capital at different stages of production (or industrial value chain processes).
Natural resources are also scarce resources that are accessible to society as raw materials for production processes. Such natural resources (e. g crude oil, solar energy, water, etc.) exist by the law of nature but are prone to misuse and misallocation by those who exploit such resources. Much economic literature dealing with natural resources focuses on the economics of natural resources, the environment, and sustainability.
Human Capital is the Scarcity of Wisdom
Human capital is the resource of a life-long education process that inspires the creativity and rationality of human beings to discover new knowledge about their environment. We could view it as the merger between the understanding of manual work and intellectual work. We all go to school, high school, college, or university to access the knowledge in society and engage in interactions that inspire the creation of new knowledge. But the acquisition of knowledge does not end at the university. In your career, you have big bang moments of knowledge creation. These innovative processes should be treasured and directed to aims and means that transform society and our environment into a better place.
Human capital is indeed a scarce resource that society creates through knowledge-imparting and creativity-inspiring learning processes. Such learning processes take place in education systems along the lifetime of individuals, generations. The methods and ideas of generating human capital are endless among all humans, animals, plants, the earth, the sun, and the universe. Literature focusing on human capital discusses the economics of education and learning.
How Economics deals with Scarce Resources
Economics deals with scarce resources by formalizing how to resolve the problem of scarcity using the principles of economics. You will learn the principles of economics by looking at the optimization principles that guide economic subjects in making rational decisions. But you will also know the limits of rational decision-making and the role of psychology, social interactions, politics, and other scientific fields. People do not always use scarce resources are they should use them. But why does that occur?
Learning economics first demands our willingness to build knowledge of social phenomena. Secondly, we need to be curious about what is happening in our environment. Thirdly we need the desire to discover changing causalities of observed marvels in society. Lastly, economics is an evolving science that focuses on analyzing scarce resources, just like all sciences. Read more about what economics is.
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