The Demand for Resources

Do you drive a car to get to work or school? Do you wash and dry your clothes with a washing and drying machine? Do you like to cook at home or eat at a restaurant? The reality is that most of the daily activities that we don't think about rely on energy and natural resources. What you may not know is that our dependency on these resources may pose a problem in the future. Are you eager to find out if you can solve the problem of our dependence on the natural resources? Then, continue reading to learn about our current and future relationship with energy and natural resources!

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StudySmarter Editorial Team

Team The Demand for Resources Teachers

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      The Demand for Resources Definition

      The definition of the demand for resources is our ability to recognize that we need to use energy resources conservatively and optimize our use of natural resources. Derived demand is when the demand for an intermediate good or service leads to an increase in demand for another good or factor of production. We can dissect this further — a derived demand means that our demand for a particular product will also include the natural or energy resource used to create it. We can look at a brief example of how the demand for resources is a derived demand.

      If you have a car to commute to work, you may think that you demand gas to drive your car — and you are correct! However, oil is an important energy resource needed to make gas. Therefore, you also demand oil, since gas is derived from oil. This is what the demand for resources is all about!

      Let's take a look at another example with the following graph:

      The Demand for Resources Derived Demand Example StudySmarterFig. 1 - Derived Demand Example

      What does the graph above tell us? Let's start with the graph on the left. There is an increase in the demand for laptops, resulting in an increase in quantity and price. However, it does not stop there! The graph on the right represents what happens after the increase in the demand for laptops — an increase in demand for labor to make those laptops!

      Let's break it down.

      Without more labor, the demand for laptops cannot be met. The labor market will see an increase in the labor demand needed to produce more laptops. This results in an increase in quantity and wages. This is a derived demand since the labor depends on an increase in the demand for laptops! Remember, a derived demand can be a resource or a factor of production; in this case, labor.

      The demand for resources is our ability to recognize that we need to use energy resources conservatively and optimize our use of natural resources.

      Derived demand is when the demand for a good increases because of the demand for an intermediate good or service.

      The Demand for Resources Filling a car with gasoline StudySmarterFilling a car with gasoline, pixabay

      The Demand for Natural Resources

      Let's go over the demand for natural resources. Natural resources are also known as renewable resources. Renewable resources are resources that can be restored for continued use. The main types of renewable resources are hydropower, biomass, solar, and wind. Renewable resources are generally desired because of their innocuous impacts on the environment.1

      Besides the environmental benefits, there are also several factors that will increase the demand for renewable resources. Some factors that increase the demand for natural resources include the increased price of nonrenewable resources, technological advancements, and population growth.

      Increasing prices of nonrenewable resources will incentivize consumers to seek other options in form of renewable resources. Technological advancements can speed up renewable resource implementation, and population growth will require the use of resources that can be replenished.

      The Demand for Resources Renewable Energy Consumption in the United States StudySmarterFig. 2 - Renewable Energy Consumption in the United States. Source: The World Bank2

      The diagram above shows the United States' renewable energy consumption from 1990 to 2019. As you can see, renewable energy use has been steadily increasing with minor fluctuations! However, renewable energy still only makes up around 10% of the United States' total energy consumption. The United States is still quite a while away from fully depending on renewable energy sources.

      Renewable resources are resources that can be restored for continued use.

      The Demand for Energy Resources

      Let's go over the demand for energy resources. Energy resources are known as nonrenewable resources. Nonrenewable resources are resources that cannot be restored for continued use.

      The main sources of nonrenewable resources are oil, natural gas, coal, and nuclear energy. In particular, continual nonrenewable resource usage could pose a problem in the future — remember, nonrenewable resources cannot be restored!

      Oil is the most prominent nonrenewable energy resource today; you'd be shocked at how many products have some amount of oil! Natural gas has risen in popularity relative to coal, but both are behind oil in terms of relevance. Lastly, nuclear energy is very limited in use because of its high cost and potential for cataclysmic accidents.

      The Demand for Resources Fossil Fuel Energy Consumption in the United States StudySmarterFig. 3 - Fossil Fuel Energy Consumption in the United States. Source: The World Bank3

      The diagram above shows the United States' fossil fuel energy consumption from 1990 to 2015. As you can see, the use of fossil fuels has gone down since the 1990s, but fossil fuels still account for around 80% of total energy consumption! It is clear that the United States is still heavily dependent on nonrenewable resources, even if the overall energy consumption is decreasing.

      Determinants of Demand for Resources

      Let's look at the determinants of demand for resources. Recall that the demand for resources is a derived demand, meaning that demanding a product made with energy or natural resources increases the demand for both the product and the resource! There are a few determinants that will alter our demand for these resources — let's go over them.

      Determinants of Demand for Resources: Product Prices

      The price of a product can alter the demand for resources used to create the product. For example, if the price of computers goes up because of increased demand, then computer companies will want to manufacture more computers to meet this high demand. This will require computer companies to hire more workers, resulting in the demand for labor increasing as a result of increased product prices. This will also apply to the intermediate goods used to create computers, such as microchips and screens. Both of these goods will see an increase in demand because of the increased demand for computers.

      Determinants of Demand for Resources: Substitute Goods

      The demand for a resource can be affected if the price of a substitute resource goes down. In this instance, the substitute resource will increase in demand since it is cheaper to use than the original resource. Let's say that there is an increase in demand for cell phones. A factory in California has decided that getting machines to make cell phones is more efficient and cheaper than hiring workers. Machines can get the job done quickly and for no wages! This will cause the demand for machines to go up, but for labor to go down. Labor, the original resource, was substituted for machines, the cheaper resource.

      Determinants of Demand for Resources: Technology

      Technology is a determinant of demand for resources. With improved technology, products can be made at a faster rate than before. For example, a car assembled manually will take far longer to build than a car assembled with machinery. If products are made at a faster rate, then consumers will demand them and the resource used to create them, since it's a derived demand.

      Determinants of Demand for Resources: The Demand for Human Resources

      Human resources are a determinant of demand for resources. Human resources are specific training or knowledge that people need to know for a particular job. Human resources can be incentivized by a government to produce higher-skilled workers. For example, an economy that produces agricultural goods will take less human resources than an economy that produces computer software goods. Depending on what a government wants its economy to specialize in will determine how it incentivizes human resource development. Once an economy specializes in certain goods, consumers will demand those goods and the resources used to create them.

      Determinants of Demand for Resources: Input Costs

      Input costs are a determinant of demand for resources. If the input costs decrease, then producing products that use that particular input will be cheaper — firms will be incentivized to produce more products that use that input. Therefore, consumers will demand the good that is being made at a cheaper price and therefore, indirectly, the resources used to create them.


      The Demand for Resources - Key takeaways

      • The demand for resources is about recognizing our usage of natural and energy resources.
      • Derived demand is when the demand for an intermediate good or service leads to an increase in demand for another good or factor of production.
      • Renewable resources are resources that can be replenished for future use.
      • Nonrenewable resources are resources that cannot be replenished for future use.
      • Determinants of demand for resources include product prices, substitutes, technology, human resources, and input costs.

      References

      1. Margaret Robertson, Sustainability Principles and Practice, 2017
      2. The World Bank, Renewable Energy Consumption (Percentage of Total Final Energy Consumption) - United States, Reehttps://data.worldbank.org/indicator/EG.FEC.RNEW.ZS?locations=US
      3. The World Bank, Fossil Fuel Energy Consumption (Percentage of Total Fine Energy Consumption) - United States, https://data.worldbank.org/indicator/EG.USE.COMM.FO.ZS?locations=US
      Frequently Asked Questions about The Demand for Resources

      Why is the demand for resources called a derived demand?

      Derived demand is when the demand for an intermediate good or service leads to an increase in demand for another good or factor of production.
      Resources are commonly in derived demand because their demand is derived from demand for an intermediate good or service.

      What factors increase the demand for natural resources?

      Replenishing capabilities and less damaging impacts on the environment increase the demand for natural resources.

      Is the demand for energy growing?

      Yes, the demand for energy is growing at an alarming rate.

      What are limited resources in economics?

      Limited resources in economics are known as scarcity.

      What factors influence the demand for human resources?

      A government deciding what it wants its economy to specialize in will influence the demand for human resources.

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      Test your knowledge with multiple choice flashcards

      True or False: Renewable resource consumption has been increasing in the United States.

      Which energy source is the most prominent?

      How will technology improvements change the demand for resources?

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      StudySmarter Editorial Team

      Team Macroeconomics Teachers

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