Fundamentals of Economics: Resources, Production, and Economic Agents
Economy
The economy manages scarce resources to produce and distribute goods and services, aiming to maximize material well-being. It addresses needs met by economic goods, limited by natural or man-made products.
Economic Decisions
- In Production Companies: Decide which goods to develop and how to produce them.
- In Consumption: Families decide how to distribute income among goods and services.
Branches of Economics
Microeconomics
Studies the behavior of individual units (consumers, businesses, industries) and their interrelationships.
Macroeconomics
Studies the economy as a whole, aiming to understand and influence economic activity at a national or international level.
Scarcity
Human wants are unlimited, but economic resources are limited. This is a disparity between desires and available means, making scarcity a relative concept.
Needs
The sense of deprivation coupled with the desire to satisfy natural (eating), social (celebrations), and collective (transport) needs.
Economic Goods
Useful, scarce, and transferable. Free goods are unlimited and unowned (e.g., air). Economic goods are limited in relation to desires.
Types of Economic Goods
- Capital Goods: Not for direct consumption, but for production (durable and non-durable).
- Intermediate Goods: Require transformation before becoming consumer or capital goods.
- Final Goods: Ready for use or consumption.
Services
Activities that satisfy human needs without creating material objects, directly or indirectly.
Resources
Basic factors or elements used in production (factors of production or supplies).
Types of Resources
- Earth: Farmland, urban land, and natural resources (minerals).
- Work: Physical and intellectual abilities of humans in production.
- Capital: Buildings, machinery, equipment, and other means used in production.
Population
- Working Population: Employed fully, partially, normally, or seasonally.
- Unemployed: Seeking work but not currently employed.
- Inactive Population: Retired, students, homemakers, disabled, etc.
Opportunity Cost
The quantity of other goods or services forgone to obtain a good or service. The production possibilities frontier reflects these choices.
Economic Agents
Economic activity centers on producing goods and services to satisfy human needs. Production units (firms) employ labor, capital, and natural resources.
Economic Sectors
- Primary Sector: Activities close to natural resources (agriculture, fishing, mining, ranching).
- Secondary Sector: Transformation of goods (industry, construction).
- Tertiary Sector: Services meeting needs (transport, trade, health, advertising, tourism, education).
The Company
The basic unit of production, hiring factors to make and sell goods and services. Companies organize production and distribution.
Types of Companies
- Individual Property: Sole proprietorship.
- Collective or Legal Persons: Corporations, foundations, cooperatives.
Business Financing
- Self-Financing: Resources generated by the company.
- External Financing: Loans, credits, obligations (stocks, bonds).