Question

After reading Chapter 2 of Principles of Macroeconomics, please provide at least one example of each type of economic resource (land, labor, capital, entrepreneurship). Furthermore, be prepared to provide examples of how the five parameters (incentives, trade-offs, exchange, information, distribution) link scarcity and choice for the resource examples that you provide

Answer 1

Macroeconomics requires dealing with the entire economy as one and looking at all resources from the part of the economy or industry as a whole.

Most decisions in this regards are taken by industry experts, the government etc. which plays a huge role in shaping the future of an economy.

For decisions to be taken, it is important that one is aware of the economic resources available to mankind to take an informed decisions and the parameters effecting the same.

For this, each economic resource is explained in detail as follows:-

(1) Land

Land is known to be a scarce resource for most countries, and in general there are a lot of alternative uses to which this can be put. For example:- The same piece of land can be used for opening a hospital, running a farm or opening a school or running a factory.

It is therefore, a vital aspect of the overall macro-economic decision for the country. While taking a decision many factors are used and these are explained in context to land as follows.

Parameters Discussion:-

While taking macroeconomic decisions related to land, the use of it must be understood. Often, the government provides incentives to develop a particular area in a given manner. The government may want to increase the agricultural output of a particular sector and choose to give incentives in that particular sector respectively.

Further, at any point of time, land and its use has trade-offs involved because of the alternative uses possible. The same piece of land going to an industry would mean some use of its being blocked. The land maybe suited for agriculture also or for opening a school. This decision making is part of how an economy grows. Efficient utilization being the prime task of the government of a country respectively.

Further, exchange of this resource is heavily guarded by macro-economic policies, taxes and conversion happens only after prior government permission. The resource being one of the most expensive ones sees heavy government protection which usually is in direct control of allowing how a particular area develops.

Information Distribution in case of land as a capital resource is also an important element. The use of land is clearly communicated in organized societies which know how to acquire the same and turn them into resources for self-use and the for the use of the society as a whole respectively.

(2) Labor

The next discussion is labor which as an equally important aspect of macroeconomics. The quality of labor force in an economy has a wide impact on the overall productivity and therefore is one of the key elements of the overall economic resources owned by the country.

Parameters Discussion:-

Labor is an equally scarce resource. Incentives can be given to improve their quality and the trade-off arises because people can do different kinds of work at any point of time. Further, rapid availability of information means that labor as a resource can also view better opportunities for itself and thus transform over the years respectively.

(3)Capital & Parameter Discussions

Capital is the biggest economic resource next to land. Even labor in some cases may not be able to give proper results. For example countries like India have ample availability of labor, but their capital availability is not as high. It refers to the flow of money in an economy

With the use of capital as a resource, incentives can be given to industries, to ensure that they work well. Further, due to scarcity of capital, it can be used to do a lot of things, from manufacturing to producing weapons.

A key aspect of macroeconomic policy is managing capital in the correct manner. Countries with effective management of capital are able to generate more in the long run like the United States respectively.

(4) Entrepreneurship:-

A very vital economic resource is entrepreneurship. It is widely used to increase the flow of capital in an economy and innovation. For example countries such as the United States have widely been able to see a rise in capital because of the abundance of ideas that entrepreneurs have given the country over the years.

In this parameters such as information availability widely help in increasing the overall revenue for a state. Countries, in which ideas flow relatively easily find it easier to generate employment as a source. Entrepreneurship plays a vital role thus, as an economic resource and the effective utilization of all other elements such as land, labor, and capital is dependent on effective management and creation of jobs in the country respectively.

As a macroeconomic policy this phenomenon needs to be provide with attractive incentives respectively.

Please feel free to ask your doubts in the comments section.