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To produce goods and services requires resources, these economic resources are scares relative to the infinite needs and wants of people and businesses operating in the economy. It is important to use these resources efficienty in order to maximise the output.

There are four distinct types of resources

• Land
• Labour
• Capital
• Entrepreneurship

Land

Land is the natural resources available for production. Some nations are endowed with natural resources and exploit these by specialising in the extraction and production of these resources, e.g. Oil in the Middle East.

Only one major resource is for the most part free; air. The rest are scarce because there are not enough natural resources in the world to satisfy the demands of consumers and producers. Air is classified as a free good since consumption by one person does not reduce the air available for others.

Labour

Labour is human input to the production, i.e. the work force. Two important points need to be remembered about labour as a resource:

1. A housewife, a keen gardener and a DIY entusiast all produce goods and services, but they do not get paid for them. They are all producing a non-marketed output and the output of these people is not included in the Gross Domestic Product (GDP).
2. Not all labour is of the same quality. Some workers are more productive than others because of the education, training and experience they may have received.

Human capital refers to the quality of labour resources, which can be improved through investments in education, training and health.

Capital

To an economist, capital has several meanings -- including the finance raised to operate a business. Normally the term capital means investment in goods that can produce other goods in the future.

Capital refers to the machines, roads, factories, tools, etc. which human beings have produced in order to produce other goods and services. A modern industrialized economy possesses a large amount of capital, and it is continually increasing. Increases in the capital stock of a nation are called investment. Investment is important if the economy is to achieve economic growth in the long run.

Capital accumulation or capital formation is the process of adding to the net physical capital stock of an economy in an attempt to achieve a greater total output, i.e. to produce more. The rate of accumulation of an economy's physical stock is an important determinant of the rate of growth of an economy. There are two distinctions between rates of capital accumulation:

Capital widening: Capital stock rising at a rate which keeps pace with labour force growth so the proportion of capital to labour remains unchanged.

Capital deepening: Capital stock grows faster than labour force so that proportionally more capital to labour is used to produce national output.

Capital consumption: A reduction in a country's capital stock incurred in producing a years's GDP. This is a result of depreciation of roads, machines, vehicles, etc. over time these become worn out or obsolete. In order to maintain or increase next year's GDP a proportion of new investment must be devoted to replacing worn out capital stock.

Entrepreneurship

Entreprenours are people who organize other productive resources to make goods and services. Some economists regard entreprenours as a specialist form of labour input. Others believe that they deserve recognition as a separate factor of production in their own right.

The success and/or failure of a business often depends critically on the quality of entrepreneurship.