March 23, 2018 

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AGGREGATE DEMAND CURVE: A graphical representation of the relation between aggregate expenditures on real production and the price level, holding all ceteris paribus aggregate demand determinants constant. The aggregate demand, or AD, curve is one side of the graphical presentation of the aggregate market. The other side is occupied by the aggregate supply curve (which is actually two curves, the long-run aggregate supply curve and the short-run aggregate supply curve). The negative slope of the aggregate demand curve captures the inverse relation between aggregate expenditures on real production and the price level. This negative slope is attributable to the interest-rate effect, real-balance effect, and net-export effect.

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A basic condition of nature which means that the quantities of available labor, capital, land and entrepreneurship used for the production of goods and services are finite. It means that the economy has only so many resources that can be used AT ANY GIVEN TIME time to produce goods and services. Limited resources are one half of the fundamental problem of scarcity that has plagued humanity since the beginning of time. The other half of the scarcity problem is unlimited wants and needs.
The phrase limited resources means that the quantities of productive resources available to the economy are finite. The economy has a finite amount of labor, capital, land, and entrepreneurship that it can use for production. It might have a lot of those resources, but the quantities are NOT infinite.

Four Resources

Consider the four broad resource categories:
  • Labor: This is the mental and physical efforts of humans (excluding entrepreneurial organization) that is used for the production of goods and services.

  • Capital: This is the manufactured, artificial, or synthetic goods used in the production of other goods, including machinery, equipment, tools, buildings, and vehicles.

  • Land: This is the naturally occurring materials of the planet that are used for the production of goods and services, including the land itself; the minerals and nutrients in the ground; the water, wildlife, and vegetation on the surface; and the air above.

  • Entrepreneurship: This is the special sort of human effort that takes on the risk of bringing labor, capital, and land together to produce goods. Entrepreneurship is the factor that organizes the other three.
The existence of limited resources has a very important implication. AT ANY GIVEN TIME, the quantity of goods and services that the economy can produce is also limited. While a gadzillion workers is a large number, it is still a limited quantity. It is NOT a gadzillion and one workers.

Limited Today, More Tomorrow

Having limited resources today, however, does not mean that they are fixed for ALL TIME. The economy can make the quantities of the resources less limited. The two key terms to note here are economic growth and investment.
  • Economic growth is the process expanding the production capabilities of the economy by increasing the quantity or quality of resources. Economic growth is achieved through the fundamental process of investment.

  • Investment is usually thought of as the acquisition of capital goods, or even more commonly as purchasing shares of corporate stock. However, in the context of economic growth, investment applies to other resources, as well. In other words, exploring for land or the material resources of land is investment. Improving the quality of labor through human capital is also an investment.


When combined with unlimited wants and needs, limited resources results in the fundamental problem of scarcity.


Recommended Citation:

LIMITED RESOURCES, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2018. [Accessed: March 23, 2018].

Check Out These Related Terms...

     | scarcity | unlimited wants and needs | first rule of scarcity | opportunity cost |

Or For A Little Background...

     | resources | labor | capital | land | entrepreneurship |

And For Further Study...

     | three questions of allocation | economics | dismal science | seven economic rules | technology | production | good | service | production possibilities | market supply | production cost | short-run production analysis |

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