Types of Resources and Scarcity Assignment Help

According to the American Heritage Dictionary, resources are anything that can be used to advantage or available capital assets. Factors are things that actively contribute to an accomplishment, result or process. 

Hence, it is clear that resources are inputs that can be used to produce required goods or services. And when such resources are applied towards production of goods or services, they are called as factors of production. Sometimes, the two terms are used interchangeably. 

The resources available to any economy are limited in nature and hence are scarce (scarcity concept will be discussed in more detail later). The total available resources in an economy determine how much the economy can produce. 

A common categorization of factors of production is based on nature of resources and is given as follows:

  1. Land: It includes all natural resources that are given to us by nature at no cost. Some of the examples include, land, water, air, mountains, deserts, seas, rain, sun, forests, soil, coal, copper, etc. It is a passive factor of production. The return earned by using this particular factor of production is called income.
  2. Labour: Labour refers to any kind of effort put by human beings in order to produce goods and services and thereby, earn income. This effort can be physical as well as mental. The compensation or income in return for such effort is known as wages (or salary). It is labour which works with land in tandem to produce income.

Primary inputs: These include land and labour which are known as primary factors of production.

  1. Capital: All of machinery, tools and technology that is used to produce goods and services is part of Capital. For example, computer, trucks, hammers, internet, etc. The income that is earned by using Capital factor of production is known as interest.
  2. Entrepreneurship: This factor of production is also known as enterprise. Without this particular factor, remaining three factors cannot be used as entrepreneur combines and uses the other three factors of production in order to achieve targeted goods and services and earn profit in return.

Entrepreneurs is a unique factor of production as it also includes those who innovate new ways to produce goods and services or, innovate new goods and services. These are some of the most successful entrepreneurs who have built large, well-known corporations due to their vision and innovative ideas. Some examples are Bill Gates, Steve Jobs, Henry Ford, etc. 

Let’s consider an example to understand how various factors of production work together to produce goods and services and also a return. For example, a cotton shirt is required to be produced. First of all, a farmer will grow cotton on land by using various seeds, fertilizers, water etc. All of these resources that are used are scarce in nature. Once cotton grows, farmer sells it to a shirt making company and earns income in return. In the company, cotton is processed and then labourers make a cotton shirt. Through this process, various machineries will be used. Labourers earn wages for working in the factory. Once shirt is ready, the factory owner sells it and earns a profit. All resources used through the process are scarce and could have been used elsewhere to produce a different good or service. 


With respect to economics, scarcity is one of the fundamental economic problems and refers to limitation. In other words, the resources available for human being’s purposes are limited in nature, be it goods or services, time, natural resources or abilities. The term is quite self-explanatory as scarce implies lack of or something that is less or limited. 

Law of Scarcity

Economics is based on the Law of Scarcity. From an economist’s perspective, anything that requires effort to achieve is considered scarce. This is because human beings have unlimited wants and their desires are also unlimited. If they achieve some, there will still be more to be achieved. However, all the human wants cannot be satiated simply because resources are scarce in nature. This limited availability, in turn, helps people to take responsibility and make wise decisions with respect to scarce resources so as to allocate them to objectives that take priority.

For example, time is limited as everyone only has 24 hours in a day. Hence, time is a scarce resource. A student who has to pass an exam will be willing to allocate more of his time towards studies so as to pass the exam and achieve desired objective. However, when there are no exams, the same student will be willing to devote more time towards meeting friends, playing or watching movies. The student cannot do both the things at the same time as he has limited time which needs to be allocated wisely.

Types of Scarcity

All resources are scarce in nature and we can categorise scarcity as follows:

  1. Economic scarcity: This refers to a situation where scarcity arises due to imbalance in demand and supply of the resource. For example, if supply of a particular resource decreases, it will drive the resource’s price up and will open avenues for increasing the supply of that resource
  2. Physical scarcity: This mainly refers to natural resources which are available in limited quantity and hence, are scarce. For example, water, oil, land, gold etc.
  3. Scarcity as quality of resources: This is a non-market scarcity where demand and supply does not play a dominant role. Hence, a resource will be available but its particular quality that is required may not be available or be scarce. For example, human resource may be available in large numbers but a particular skillset that is required may be scarce.
  4. Geopolitical scarcity: This refers to scarcity that is created by certain organisations or nations so as to drive up the prices. Typically, this scarcity can arise when a resource is geographically concentrated. The availability will depend on political conditions and relationship with the organisation. For example, oil. The cartel will not release oil in large quantities so as to maintain high prices. Hence, the supply is artificially controlled by a particular organisation.