Living Economics: The World of Resources

*The game referenced in this article is ‘The Tribez‘ offered by Game Insight UAB.

Before delving into business or economics, it helps to know a little bit about the vocabulary of resources.

The five principal ways to categorize resources include:

  • Natural Resources v. Man-Made Resources
  • Unlimited Resources v. Limited Resources
  • Tangible Resources v. Intangible Resources
  • Variations of Business Assets
  • Capital v. Labor

1) Natural Resources v. Man-Made Resources

The difference between natural and man-made resources pertains to their creation.

Natural Resources evolve through natural processes. Includes anything that has a natural growth cycle or is created through natural events (floods, earthquakes, etc). Examples are flowers, chicken, gold, and cotton. Alternative terms for natural resources are commodity or raw materials.

*Natural Resources include items that would grow naturally but are facilitated through human interference (e.g. flowers from a greenhouse) or items in a modified form (wood turned into lumber).

In the image above: food, wood, rocks, ice, lumber, stones, sand, and coral are all natural resources.

Man-Made Resources are manufactured through human-generated processes and are not naturally forming. In this case, the resource is often a combination of two other resources (e.g. milk + flour + eggs = biscuits). Examples: Tin, Chicken Soup, Glass.

In the image above: thread, rainbow glass, and yarn are all man-made.

2) Unlimited Resources v. Limited Resources

Unlimited Resources and Limited Resources refer to production levels and demand.

Unlimited Resources are produced promptly such that supply is readily replenished and demand is generally satisfied. Few, if any, things are TRULY unlimited, but some items can be practically unlimited where supply is high.

Limited Resources are produced slowly or are no longer in production. Supply is declining and demand is not easily satisfied. Most things are limited; where there is not enough supply it becomes scarcity.

Whether something is limited or unlimited depends on several factors:

  • Seasons
  • Geographic Location
  • Time of Day
  • Popularity
  • Environmental Situation
  • Population

Seafood may be relatively unlimited on Tuvalu, yet highly scarce in the desert nations. Trees are more common in Russia than in Africa.

3) Tangible Resources v. Intangible Resources

The joy of seeing the circus = intangible. The circus itself = tangible

Resources can be tangible (can be touched) or intangible (exists, but cannot be touched). All resources, regardless of tangibility, are potentially valuable.

  • Tangible: Tools, Equipment, People, Food
  • Intangible: Goodwill, Reputation, Ideas, Experience, Labor, Happiness
Labor and raw materials

A significant intangible resource for businesses is human capital – the skills, experiences, and knowledge workers offer. Having an experienced worker can be as valuable as having the right tool.

Buyers consider both tangible and intangible resources in forming value-based judgments. For instance, many will reject products or opportunities that consume too much time without sufficient reciprocal benefits.

Tangible resources can generally be valued by calculating the money spent in their purchase (i.e. via receipts, prices). Conversely, intangible resources may prove difficult to quantify and are often inappropriately overlooked in economic decision-making.

Customers for example find it easy to identify the monetary value of a car (money is tangible), but may find it easy to state clearly the value of the decreased time spent walking to school, the joy of being able to ride with the wind in your face, or the happiness of being able to leave one hour later in the morning.

4) Business Assets

Companies deal with significant resources daily and must keep very meticulous records. Business resources specifically are known as assets.

Assets refers to a company’s resources.

Most businesses keep an annual record of their assets in the Balance Sheet.

  • Assets that belong to others (there is a debt) are called liabilities.
  • All other assets belong to us (the owners of the company) are called equity.

When we borrow $100 from a bank, it contributes to our assets (but must be paid back later — liability).

When the investors buy shares for $150, it generate a usable asset (and belongs to the company — equity).

All of a company’s resources either belong to the owner’s or to others. This creates the Balance Sheet formula:

Assets = Liabilities + Equity

Balance Sheet Equation

Common business assets include:

  • Money
    • Cash
    • Accounts Receivable
  • Inventory
    • Raw Materials
    • MRO
    • Works in Progress
    • Finished Goods
    • Unfinished Goods
  • Labor
  • PPE
  • Investments

5) Capital v. Labor

Resources used in production and manufacturing are often categorized as either capital (materials – tangible) or labor (energy / work effort – intangible).

Generally capital is calculated in terms of the money spent to obtain those materials. The Cost of Capital (r) = cost of purchasing one “unit” of materials *r for rate. For example, the cost of capital for producing one cake may be 2 eggs + 1 cup of flour + 1 cup of sugar . . . etc — valued at $10 total.

Labor is calculated in terms of the hours sacrificed. The Cost of Labor (w)= cost of purchasing one hour of labor. *w for wage

These terms are significant; a great deal of the math involved in microeconomics courses revolves around the relationship between capital and labor. In those cases, Capital is written as K; Labor is L.

When put together, Labor and Capital produce products.

(r x K) + (w x L) = Cost of Q

Total Cost of Capital + Total Cost of Labor = Cost of Quantity Produced

Production Formula

In this example, producing 25 stones requires

  • 2 Workers putting in 30 minutes each = Labor
  • 50 Sones + 50 Food = Capital
Unlimited ResourcesResources produced swiftly enough that supply is continually replenished and demand is generally easily satisfied.
Limited ResourcesResources produced slowly (or no longer in production) such that supply is declining and demand is not easily satisfied.
Natural ResourcesResources created through a natural process. May be facilitated or reshaped later by human assistance but will also occur without human interference.
Flowers, Crops, Lumber, Minerals
CommodityAnother term for natural resources
Man-Made ResourcesResources created through a human-generated process and would not occur in nature.
Machines, Plastic, Chicken Soup
TangibleCan be physically touched
IntangibleCannot be physically touched
AssetsThe resources of a company
LiabilitiesThe resources (assets) of a company that belong to others (because of a debt).
Company A borrowed $100. They have $100 (an asset), but it does not belong to them (liability)
EquityThe resources (assets) of a company that belong to the company or owners.
Company A made $500 in revenue (Asset). This money belongs to the company & investors (Equity)
Cash on HandMoney the company has earned as has ready for use
Accounts ReceivableMoney the company has earned, but has not yet received. (Future cash)
Raw MaterialsTangible resources that are the parts or components of a product.
Eggs & Milk for cookies
MROMaintenance, Repair, and Operations. Resources used for the daily management of the company.
Office supplies, cleaning supplies, repair tools for the machines.
Works in ProgressProducts that are partially but not completely finished.
Cookies not yet iced.
Finished GoodsProducts that are completely finished and ready to sell to the end consumer (customers).
Cookies ready to sell to customers
Unfinished GoodsProducts that are completely finished but are parts or components of larger products
Milk ready for sale to Starbucks who will produce a Cafe Latte.
Labor (L)The work and energy used (measured in hours worked)
Wages (w)The cost spend on one unit of labor.
EquipmentThe machines and tools used in producing products or managing the company
Computers, Production Machines, Printers
Capital (K)Generally refers to 1) the assets used in production or 2) money available for use
Rate of Capital (r)The money spent purchasing one unit of capital for production.
Human CapitalThe intangible assets held by people. Includes experience, training, knowledge, and skills.
GoodwillThe good opinion people hold of the company (it’s reputation).
InvestmentsResources that the company has purchased to profit from the future resale.
PlantThe factory and buildings using in production
PropertyGenerally refers to the land.
Balance SheetA record of a company’s resources (assets) including which belong to the company (equity) and which belong to others via debt (liabilities)

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