Economic Activities, Production & Sectors: A Comprehensive Guide
Economic Activities and Production
Definition of Economic Activities
Economic activities are all the processes used to obtain the goods and services that people need.
Production
Production encompasses all the goods and services created as a result of an economic activity.
Distribution
Distribution is the process of moving goods and services from the place of production to the consumer.
Consumption
Consumption includes all the goods and services that people buy to satisfy their wants and needs.
Payment Methods Throughout History
Several different forms of payment have enabled people to acquire goods and services:
- Barter: Direct exchange of goods.
- Natural Coins: Valuable natural items with an agreed value, such as shells, cocoa, salt, and furs.
- Metal Coins: The first metal coins were made in Lydia (present-day Turkey) in the 7th century.
- Paper Money: Notes first appeared in 11th-century China as property certificates. They weren’t used in the West until the 16th century.
- Bills of Exchange and Cheques: Appeared in Europe in the late Middle Ages. Changed through banks, requiring the proprietor’s signature and the addressee’s name.
- Plastic and Electronic Money: Credit and debit cards appeared in the 20th century, enabling purchases without cash.
Economic Sectors
Economic activities can be grouped into three large sectors:
- Primary Sector: Activities that obtain food and raw materials.
- Secondary Sector: Activities that transform raw materials into finished products.
- Tertiary (Service) Sector: Activities that provide services.
Companies
Definition and Types
Companies produce goods and services for profit, requiring human labor. In exchange for their work, people receive wages.
Companies can be classified by ownership and size:
- Ownership: A company is state-owned if it is owned by the government.
- Size: This can refer to the number of workers or the profit.
The State’s Economic Functions
States have several economic functions:
- Establish rules to govern economic activity.
- Support the private sector with subsidies and aid.
- Create companies in strategic or struggling sectors.
- Provide public services and purchase goods and services as needed.
- Generate jobs for public services and their workers.
Income
Income represents a company’s total sales and profit (what they gain or lose). It’s the difference between income and expenses, which can be negative if expenses exceed income.
Production Methods and Factors
Producing goods and services requires various factors: natural resources, capital, technology, skills, and human labor.
Natural Resources
The production process uses natural resources like water, animals, minerals, and fossil fuels. Resources can be renewable or non-renewable.
Capital
There are three types of capital:
- Physical Capital: Tangible assets like buildings, machinery, and computer equipment.
- Human Capital: A worker’s knowledge, experience, and training. Continuous training is crucial for increased productivity.
- Financial Capital: Money used to start or maintain a business. Sometimes, business owners need loans or government subsidies.
Technology
- Manual: Humans do the work and control the tools.
- Mechanical: Machines do the work, but workers control them.
- Automatic: Machines do the work and control themselves; workers program or supervise them.
Knowledge and Know-How
Economic growth depends on knowledgeable people. A modern, competitive economy requires research centers and a quality education system. Well-trained workers are essential for innovation.
Know-how refers to the skills (techniques, business practices) needed for a specific activity.
Work
Work is both physical and intellectual.
Production and Productivity
Production is the total output.
Productivity is the number of units produced per day.
A worker’s productivity depends on factors like training, experience, available resources (capital and technology), and production organization.
Teleworking
Nowadays, work can often be done remotely, typically from home, known as teleworking.