Understanding Key Economic Markets: Resources, Capital, and Labor

Market of Natural Resources

The amount of natural resources available to a country or an economy is often considered constant, and short-term production obtained from them is also constant. However, changes can occur in the alternative uses for some resources. For example, a farmer can substitute their crops of corn with wheat, which by no means changes the amount of arable land.

Rent: Remuneration for Natural Resources

The remuneration received by the owners for the use of natural resources, which measures their ability to generate income.

Capital Market

Interest: The Economic Value of Time

The functioning capital market has these features:

• Demand for Capital

  It is formed by different operators who wish to satisfy their consumption needs, investment, or government spending. The demand curve is decreasing because as the interest rate increases, the amount of capital demanded is less.

• Supply of Capital

  Consists of savings, earnings, and surplus. The supply curve is increasing because the higher the interest rate, the more capital economic agents are willing to supply.

• Equilibrium Interest

  The interest rate generated by the interplay of supply and demand in the capital market.

Simple Interest Formula

Simple Interest = (c × r × t) / 100

Where:

• c = Principal amount
• r = Annual interest rate (%)
• t = Time period (in years)

Compound Interest Formula

Compound Interest = C - c

Where:

• C = Final amount after interest
• c = Principal amount
• C = c × (1 + r/100)^t
• r = Annual interest rate (%)
• t = Time period (in years)

Labor Market

Salary: Remuneration for Work

The remuneration for work provided on behalf of another. The functioning labor market has these features:

• Demand for Labor

  The demand for labor is derived from the work posts offered by companies. The quantity of labor demanded depends on the following factors:

  • The level of wages: If wages rise, costs increase, and companies will be willing to hire fewer workers, and vice versa.
  • The price of goods: The higher the price at which companies can sell their products, the more new workers they may hire to compensate for increased production.
  • The productivity of the worker: The qualification, training, and experience of workers influence the work they perform. Firms must decide whether to justify the recruitment of workers based on the production they achieve.

• Supply of Labor

  The job offer is made by the workers. The amount of work offered by them depends on the amount of wages and the characteristics of the population.

• Equilibrium Wage

  Generated by the interplay of supply and demand.

• Minimum Wage

  The minimum wage is the wage that any worker in Spain should receive.