Economics deals with the concepts of the scarcity of resources and making choices that best utilize what is available. The costs of economic decisions must be weighed against their benefits, and businesses may need to adapt to conditions within each economic category.
Economists include in the category of land all sorts of naturally occurring resources, such as water and timber, as well as the actual physical expanse of land. These resources are all limited and society has to weigh how best to use them. That’s why, for example, there is a need to be careful about water consumption, and some businesses assess water risk when they plan new facilties or relocation projects. The growth benefits of investing in low water risk areas may outweigh costs.
Labor refers to the resource represented by workers. Workers are necessary to produce any sort of goods. An organization may be able to produce more quantities by employing more workers. However, the workers will have to be paid wages, and the business will have to decide whether the costs of employing more workers are outweighed by the benefits. If the business decides the benefits of employing more workers outweigh the costs, it will employ more workers.
Capital includes the resources used in production. This includes physical capital such as tools and machines, the human capital gained through education and training and the financial capital needed to produce a good. There is a certain cost involved in assembling various goods and financing them in order to produce an output. Entrepreneurs will only invest capital if they expect the benefits to outweigh the costs.
Entrepreneurship in economics represents the ability of the entrepreneur to combine the other resources to produce an output. For instance, in order to produce widgets, an entrepreneur needs to invest capital, invest in raw materials and workers and find a place for the production to take place. The entrepreneur will only undertake this sort of venture if he finds a beneficial return will result that outweighs the cost, taking into account the costs of various resources, including time.