The Demand for Resources

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.

Fig. 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.

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.

Fig. 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.