Economic Agents, Production Factors, and Business Finance

Posted on Dec 7, 2024 in Economy

Factors of Production and Economic Agents

Resources are the factors used in the production of goods and services, so they are called factors of production. There are four:

Land (natural wealth, all the natural resources of land and sea)
Labor (physical and intellectual faculties of human beings involved in the production process)
Capital (we refer to physical capital, means of all kinds used in production, such as buildings and machinery, and never alluded to financial capital, funds available for the purchase of physical capital or financial assets, while it is necessary to distinguish and/or physical capital human capital, education and vocational training to increase job performance)
Entrepreneurship (ability to detect business)

Economic activity par excellence is the production of goods and services aimed at meeting human needs. These goods and services produced will be consumed by the economic agents: households, businesses, and the public sector. The various roles played by economic agents are classified into three sectors:

Primary sector (activities undertaken around the bases of natural resources, such as agriculture)
Secondary sector (industrial activities by which goods are transformed)
Tertiary sector (corresponds to the provision of services)

Exchange, Specialization, and the Division of Labor

Each individual wants to consume diversified goods and tends to get in touch with other individuals to change what they have in abundance so they do not have.

Exchange is advantageous because it is win-win, and also allows the division of labor and specialization of workers in more specific tasks.

In modern societies, by incorporating technology into production processes, the company has promoted exchange and has made possible specialization and the division of labor. The span of the work allows the specialization of workers.

Barter and the Role of Money

The most primitive form of exchange is barter (exchange of goods or services for another). It has serious disadvantages: it requires a coincidence of needs and has the disadvantage of the indivisibility of certain properties. When an exchange involves many participants, it becomes very complex. The limitations of barter disappear when money is involved; the exchange becomes easier and more efficient, as it is not necessary to match needs.

Companies: Structure, Classification, and Financing

Companies

In modern societies, practically all goods and services are produced and offered by companies. The company is a basic unit of production. It hires, purchases, and leases labor and other factors to produce and sell goods and services. It is an entity composed of capital and labor, industrial activity, commercial or provision of services for profit.

Classification by Activity

Industrial (processing, acquire materials to transform them into products prepared for consumption)
Commercial (buy merchandise and then sell them at a higher price in order to make a profit)
Service (offered to the direct consumer enjoyment of an activity)

Classification by Legal Nature

Individual Proprietorship (the company belongs to an individual and is run by the proprietor. The proprietor will answer with all their personal property)
Social (the company is in a legal person or group of persons or partners. It can be collective when members contribute labor and capital, and have joint and unlimited liability, or limited when there are general partners and limited partners and capital providers whose responsibility is limited to the capital provided. If you bring capital by shares, it is a company limited by shares)
Limited (partners provide the capital and are not personally liable for the debts, their responsibility is limited to the capital provided)
Anonymous Society (the capital is divided into equal, small parts called shares, each shareholder has a limited responsibility that only meets the capital that has been made and is not responsible for the debts of the company)
Society of Capital and Industry (partners bring capital and work. When it is created to meet the needs of the partners, it is a cooperative)

Reasons for the Existence of Business

There are three reasons to explain the existence of business:

Provision of financial resources: the company must meet the necessary financial funds to make the large investments needed for the activities of production.
Production management: it is necessary to monitor, manage, and monitor the production. For this, there are people who represent the company and are responsible for making decisions.
The diminution of costs: the gains from reduced costs as volume increases production.

Plant, Industry, and Sector

In the area of the company, we must distinguish three concepts:

Plant: all physical and organizational structure for the production of a good or service.
Industry: a group of firms producing the same goods or service.
Sector: a group of industries with similar characteristics.

Financing of the Company

To start a business or to facilitate its functioning, financial resources are needed. According to their origin, they are grouped into two categories:

Self-financing: integrating the so-called own resources. These include those with partners or owners of the company and the share of profits not distributed among owners and that stays in the company to meet its financial needs. Large firms can obtain financing through the issuance of shares, this allows large anonymous societies to gather capital amounts through many small investors (shareholders). The incentive effect is the participation in the company’s benefits according to the number of shares purchased.
Foreign finance: the ways to obtain financial resources from outside the firm are three:

Banks, savings banks, and other financial institutions through loans and credit. The company undertakes to repay the amount received plus interest set by the bank.
Issuance of bonds, the company divides the total amount of money needed into small quantities of the same value, issues stock, and puts that value on sale. These are called debentures or bonds.
The commercial credit providers developed by the firm. A credit granted to the company by the time the payment is delayed.

Public Sector

The public sector consists of an organ and public administrator with three levels of government:

Local government: municipalities
The provincial administrator
The central administration, government, ministries, and other agencies of national character

The public sector coordinates and regulates the market while setting the economic policy, trying to achieve overall objectives. It establishes the legal and institutional framework in which economic activity takes place.

Instruments of the Public Sector

Taxes: Levied on income and on goods and services. The tax system serves to discourage certain activities through taxation and to encourage others that are less taxed. When the state determines taxes, it is deciding how it will extract the resources of households and businesses to give them a public purpose.

Income taxes, earnings in excess of the minimum non-taxable. They are the most important.

VAT (Value Added Tax) is charged each time we buy what we pay. Charged on transactions, and therefore is indirect.

Costs: state spending on certain goods and services with transfers, provide resources to individuals. These transfers are payments that the public sector makes to families and that do not arise out of current economic activity.
The regulation