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Investigate the complexity of the economic problem and apply economic decision-making tools and processes to deal with the problem

Course Overview

Demonstrate an understanding of the role of economic systems in relation to economic problems in Papua New Guinea

Distinguish between the approaches adopted by a range of economic systems to allocate resources

Topic 1 Goals

  • Identify and explain the characteristics of a resource with examples
  • Identify and list the different types of resources from land, labour, capital, and enterprise (factors of production)
  • Distinguish between renewable and non-renewable resources
  • Find out how resources are allocated in PNG and explain with examples the government policies in allocating these resources

Course Content

6 Lessons 6h 40m

    A resource is a factor of production (land, labour, capital, and enterprise) which is used to produce a good/service.
    The nature and scale of contemporary economic activities are causing environment degradation and depleting many of the resources on which future production will depend.
    Most production involves the use of environmental resources. The economy uses the natural environment in three basic ways:

    • As a source of raw materials: industries and households making use of air, water, minerals, energy, forests, land, and biological diversity
    • As a waste disposal system: industries and households depositing waste into the atmosphere and waterways, and onto land
    • As a provider of environment amenity: people enjoying the natural environment for its scenery, its wildlife, and its uniqueness
    These resources from the environment are classified into three groups:

    Perpetual: continually renewed by nature

    Renewable: can be replenished rapidly (hours, decades)

    Non-renewable: are not replaced by natural processes (except in the very long term)

    What are the characteristics of resources:

    • Resources are scarce (limited in quantity)
    • Not all places have the same type or amount of resources
    • Resources have alternative or competing uses
    • A resource can be used to produce more than one good/service


    Natural capital: the stock of resources provided by the natural environment from which human gain amenity and productive inputs; also called ecological/environmental capital.
    Ecologically sustainable development (ESD) is an economic/social objective requiring government intervention to manage natural resources in ways that ensure the environment’s ability to meet present/future needs

      What are the environmental problems associated with resource use:
    • Climate change induced by human activities
    • Rising sea levels
    • >Rising levels of pollution of air, water, soil, and oceans
    • Degradation of farmland
    • Overcrowding and congestion of many urban areas
    • Depletion of natural resources
    • Deforestation
    • Rapid destruction of flora/fauna leading to a loss of biodiversity

    Thus, a sustainable approach to economic activity needs to be based on an understanding of the world’s resources as a capital stock rather than an income flow

    An efficient economic system will be able to allocate scarce resources efficiently (market-based; supply/demand). However, markets fail to allocate the Earth’s natural capital in a sustainable and socially efficient way when products are sold at their private cost rather than their full social cost.
    Resource allocation refers to the distribution of resources equally so that everyone benefits (satisfying needs/wants)

      What are the factors determining how resources are allocated in PNG?

    • Government policies: factor in determining where resources should be allocated to through legislation
    • Income: factor in determining where resources should be allocated as the demand for some goods/services are highly sensitive to real income
    • Increase in prices of goods/services (inflation): causes uncertainty for businesses and may result in reduction of funds into highly productive business
    • Population growth: growth in population will imply changes in consumer demand and changes in resource supplies
    • Expansion and growth of industries: the productive capacity of these industries expands rapidly causing economies to make adjustment in the allocation of resources

    A resource is a factor of production (land, labour, capital, and enterprise) which is used to produce a good/service. They are scarce (limited in quantity)

    • Resources from land: natural resources (water, oil, gas)
    • Resources from labour: human effort put into production of goods/services
    • Resources from capital: equipment (capital goods) used in the production of goods/services
    • Resources from enterprise: human resource/capital used to organise and manage all other resources to produce goods/services

    Natural resources can be divided into renewable and non-renewable resources:

    Non-renewable resources: inorganic resources extracted from the earth and fixed in quantity. Examples include oil, gas, metals etc.

    Renewable resources: organic resources extracted from the earth which can increase (regenerate) in quantity

    An efficient economic system will be able to allocate scarce resources efficiently and effectively.
    That is, resources will be distributed to where they are put into use to produce goods/services that are in demand.