Cars, golf balls, and nose rings are, obviously, produced goods, but services also require production.

 

Production entails using our knowledge and technology to apply energy to materials in ways that make the materials more valuable in satisfying human wants.

 

      For example, pouring coffee is productive—the coffee is more valuable in your cup than in the coffee pot. Studying is also usually productive: Economic concepts on printed paper increase in value when integrated into your thinking processes.

      Productive resources (factors of production or inputs) come in all types, shapes, and sizes, and all are limited. These resources, combined through technology, provide the energy and materials that make production possible. Knowledge is integral to technology.

 

Technology consists of the “recipes” available for use in combining and reshaping resources in production processes.

 

      The technology to grow roses is a simple example. If you know that roses need sunlight and moisture, you find a sunny spot and apply energy to a shovel to dig a hole. Insert a rose bush, add fertilizer, dirt, and water (materials), and, with luck, roses will soon bloom—but never unlimited amounts of roses.

      Technological advance is increasingly recognized as the key to future prosperity. Indeed, technology determines whether some materials are even seen as resources. For example, prior to when our nomadic ancestors began settling down and planting crops, land was not recognized as a scarce resource. Before we understood the usefulness of silicon in electronics (e.g., computer chips), clean sand was used primarily to make glass and bricks. Rust was merely an irritant until someone thought to use it as a pigment in paints. Today, iron oxides underpin another visual revolution—video tapes. And imbedding other types of “rust” in tape and plastic yields hard drives and CDs.

      Knowledge and technology are intertwined. Society increasingly recognizes how some technologies may foul the air and water, so environmental quality is now recognized as a scarce resource—and as an international issue for policy makers. Economists traditionally identify four broad categories of resources: labor, land, capital, and entrepreneurship, and each category receives a distinct type of payment.

 

·         Labor

Labor resources are the physical and mental talents that people can use for production; labor is typically measured by time available for work during a period. Farm hands, CPAs, and NFL quarterbacks all provide labor services. All payments per period for labor services (including salaries, commissions, fringe benefits, etc.) are called wages.

·         Land

Economists define “land” to include all natural resources, such as raw land, minerals, water, climate, and forests. Payments per period for the use of land are called rent.

·         Capital

Improvements that make natural resources more productive are capital, which includes all produced resources—such things as buildings, machinery, and roads.

·         Entrepreneurship

Entrepreneurs provide a specialized human resource; they combine labor, land, and capital to produce goods while incurring risk in their quest for profits. After paying wages, rent, and interest for the use of other resources, entrepreneurs keep any funds left over from their sales revenue. An entrepreneur's profit is a reward for organizing production, bearing risks and uncertainty, or introducing innovations that improve the quality of life.