Resources
Economics: Edexcel A A Level, topic 1.1.4
Scarcity and the Allocation of Resources
Scarcity means that people need to make choices between goods and services. Resources must be allocated in a way that is seen to be rational.
Economic activity
- Economic activity includes a wide variety of actions, such as:
- Production of goods (tangible products) and services (intangible products).
- Consumption of goods/services.
- Because resources are scarce, we must ask three questions about economic activity.
- What, how, and who to produce for?
Economic agents
- It's up to economic agents to decide on how to allocate resources.
- The three main economic agents are:
- Producers - people/firms that produce goods or supply services.
- Consumers - people/firms who purchase the goods/services.
- Governments - establishes rules for economies.
Economic agent decision-making
- Economic agents make decisions based on their various incentives.
- E.g. for firms this might be profit maximisation.
- Producers must decide what products to make and the selling price of products.
- Consumers decide what products to purchase and how much they want to spend on products.
- Governments decide how much they should get involved in the production and consumption process.
Types of Resources
Resources can be categorised into two groups: renewable and nonrenewable.
Renewable resources
- Renewable resources mean that, in theory, the resource comes in unlimited supplies.
- But this depends on the 'rate of extraction'.
- If the rate we consume the resource is quicker than the natural rate of production, the resource will become depleted and will have a finite supply.
- Renewable resources include:
- Oxygen (O2).
- Wind energy.
- Solar energy.
Non-renewable resources
- There is a finite supply of these resources.
- This means that as they are increasingly used up, their cost will get higher.
- Nonrenewable resources include:
- Gas.
- Coal.
- Oil.
Test yourself on Resources
Traditionally, what is the main incentive that firms base their decisions on?
What does the renewability of resources depend on?