Economic Activity: Sectors, Factors, Systems, and Globalization
What is Economic Activity?
Any economic activity is the process by which we obtain products and services to cover our needs. It includes three phases: production, distribution, and consumption. Economics is the science that studies all aspects of economic activity.
Economic Sectors
The economic sectors are:
- Primary
- Secondary
- Tertiary
Generally, in a more advanced economy, the tertiary sector will have more weight. Now, we even talk about the quaternary sector: research, design, management, and treatment of economic information.
Basic Economic Concepts
- Benefit
- Good service
- Cost of living and inflation: The result is the Consumer Price Index (CPI).
- Investment and speculation
- Market
- Production and productivity
- GDP: The total value of goods and services produced in a territory for a year.
Main Factors in Economic Activity
Three main factors are involved in economic activity:
- Families
- Businesses
- State
Companies and the State
Companies can be public or private. According to the number of workers, they are classified as micro-enterprises, small, medium, and large enterprises. They can also be individual or corporations.
The State must comply with fundamental economic functions:
- Create companies in certain sectors
- Develop standards to regulate economic activity
- Provide services
- Generate public jobs
To do this, it collects taxes, payments that individuals and businesses must make to a public body. Taxes can be direct (e.g., income tax) or indirect (e.g., VAT).
Factors of Production
To produce goods and services, people need natural resources, capital, and technology. These are the factors of production.
- Natural Resources: Renewable and therefore must be managed properly.
- Capital: Physical, human, and financial.
- Technology: Provides manual or mechanized, technified production.
- Knowledge and know-how
Types of Employment and Associations
Workers can be salaried or self-employed, under conditions that are formalized in an employment contract (permanent, temporary). Associations are created to protect employers (employers’ associations) and workers (unions).
Economic Systems
An economic system determines how goods and services are produced and how benefits are distributed. There are three main types:
- Subsistence or traditional
- Communist
- Capitalist
Globalization
Today, economic relations are global. This is known as globalization. International trade has grown significantly. There has been a new organization of production (multinational companies). Financial flows are more intense. International trade agreements are increasingly common. All of this is thanks to the communications revolution and the internet.
Institutions of the World Economy
- World Bank: Aims to reduce poverty.
- IMF: Advises governments on financial matters.
Both belong to the UN, as do almost all countries in the world. Many states also belong to the WTO, which establishes the rules of international trade.
The G7 is the group of the most industrialized countries: the United States, Germany, the United Kingdom, France, Japan, Italy, and Canada. In 1997, Russia joined, forming the G8.
Major Centers of the World Economy
The major centers of the world economy are the United States, the European Union, and Japan. Now, the Asian Dragons and eventually China have joined them. India and China now even exceed the United States in some aspects.
The United States
- Many of its big companies are world leaders.
- Very positive entrepreneurship.
- High investments in research.
- Highly qualified workforce.
- Very flexible economy, adapting to change.
- Significant foreign investment.
The European Union
Thanks to the union of European countries, it is the first economic power in the world. However, not all countries in the union are in the same situation. Germany, the United Kingdom, France, and Italy are the most important. Spain’s economy is growing above average but still occupies the fifth position.
East and Southeast Asia
Japan is one of the richest countries. After a crisis in 1990, it is now recovering thanks to the sale of industrial products, technology, vehicles, and consumer electronics. China has gone from being an isolated country economically to one of the main engines of the global economy. India is following the same steps. However, both have large imbalances since the majority of the population lives in poverty.
Russia
Russia is also a major center, although it has undergone a major economic setback. It is now beginning to recover and has registered growth higher than the average of developed countries. However, it faces problems since technological backwardness limits the quality of its products. There are also issues with political corruption and a lack of clear laws.
Regional Powers
Brazil
Brazil has quickly become the leading Latin American power. It has natural resources and greater economic stability.
The Republic of South Africa
The Republic of South Africa has the highest GDP in Africa, but the majority of the population lives in poverty.
Australia
Australia is one of the most prosperous developed countries. Although its economy is based on the service sector, its agricultural and mineral products are highly competitive.