Natural resources (aka raw materials) are all the materials and capacities which are provided by nature such as land, minerals and ores, coal, water, waterpower, air, and old growth timber. In short, anything used by humans which is naturally occurring.

Agriculture requires land, water and minerals, and manufacturing requires materials derived from ores and other natural resources. Pretty much every good and service requires the expenditure of energy which is also derived from natural resources.

Many people get pleasure from the natural world, and indeed many cities and towns have departments of “Parks and Natural Resources”. There is a value to clean air and water. As is the case with domestic labor, these largely nonmarket values were often ignored in the past.

Natural resources are limited in quantity, although some like air are in ample supply and freely available. In classical economics, natural resources were referred to as “land” and indeed most natural resources are in some way tied to the land. A farmer grows crops on the land, and landowners can sell mineral or logging rights on their land to the highest bidder. Housing, malls, and factories are built on the land. As is the case for everything sold on the market, supply and demand determine the price of natural resources, and overall demand is ultimately determined by consumer’s demand curves for the various products using any given natural resource.

In classical economics the term “rent” was applied to the “unearned” income a landlord could make by simply allowing a farmer to use his land. Back in Adam Smith’s day, most land was inherited, and the well-healed lived lives of luxury financed by the rents on their estates. Today land is actively bought and sold, and its price reflects an expected return. In short, the price of land and other natural resources is determined by the market. As usual there are imperfections in the market for natural resources. We’ve mentioned the oil depletion allowance and externalities such as the enormous cost of global warming which are not reflected in the market price of fossil fuels.