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Limiting Resource

In economics, a limiting resource is a resource whose scarcity constrains the productivity of a modern economy.  A resource is not limiting if there is a more abundant substitute for it, or if some other scarce resource puts a stronger constraint on productivity.  For example, it takes coking coal, limestone, and iron ore to make carbon steel.  No matter how scarce coal is, it is not the limiting resource for iron production if iron ore is even scarcer.

Steel was a limiting resource for the Allies through much of the war, even though the U.S. had ample iron ore, coal, and limestone and produced large amounts of steel, because the demand was so great.  In other words, the supply of manpower and machinery was even greater than the supply of raw steel. 

Rubber was a serious limiting resource for the Allies early in the war, but by mid-1944, the synthetic rubber industry had grown so productive that carbon black became the limiting resource for production of vehicle tires.

Japan was constrained by multiple limiting resources.  The shortage of oil, alloying metals, and almost every other important resource constrained some portion of the Japanese economy.  The shortages were exacerbated by the submarine blockade.

The fact that a commodity is not a limiting resource does not mean that it is free for the taking. However, the supply of a non-limiting resource is elastic. An increase in demand, as signalled by an increase in the price buyers are willing to pay for it, results in correspondingly greater production of the resource. By contrast, the supply of a limiting resource is highly inelastic. Production of the resource cannot be easily or quickly increased to match any large increase in demand.

There are always limiting resources of some kind in any economy, or production would be unlimited.  The resource may be a scarce commodity, or it may be workers with particular skills.  The latter is probably the most important limiting resource on the modern U.S. economy.

References

Klein (2013)


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