Understanding Economic Activity, Agents, and Production Factors

1. Economic Activity, Components, and Sectors

1.1. Economic Activity

Goods can be:

  • Material
  • Inmaterial

1.2. Components of Economic Activity

  • Production: Combined number of goods that result from economic activity.
  • Distribution: Transfer of products to consumers and their sales on the market.
  • Consumption: Use of goods from production.

1.3. Sectors of Economic Activity

Economic activity covers a wide range of activities, which are grouped into three economic sectors:

  • Primary Sector: Activities concerned with the extraction of natural resources (agriculture, livestock farming, fishing, forestry…).
  • Secondary Sector: Activities concerned with transforming natural resources provided by the primary sector (industry, construction…).
  • Tertiary Sector: Activities that provide services (education, healthcare, tourism, transport, trade…).

2. Economic Agents and Their Relationship

Economic agents: Subjects responsible for undertaking economic activity.

2.1. Businesses

Businesses: Basic units for producing economic goods.

  • Function: Produce, distribute, and sell goods.
  • Aim: Obtain economic profit.

There are various types of businesses according to:

  • Size:
    • Small-sized: Up to 250 employees.
  • Capital Ownership:
    • Public business: The capital involved is provided by the State.
    • Private business: The capital involved is privately owned.
    • Mixed business: It combines State capital and private capital.
  • Social Organization:
    • Businesses belonging to individuals.
    • Businesses belonging to groups of people:
      • Public licensed companies: The capital involved is provided by the State.
      • Limited companies: The capital involved is provided by several partners.
      • Cooperatives: Collectively managed by the partners who provide the capital.

Economic Circuit: Businesses sell goods produced by families and the State. In exchange, they receive income (used to pay salaries) along with the taxes levied by the State.

2.2. Families and the State

  • Families: Basic unit of consumption. Their function is to spend money on acquiring goods to satisfy their needs. In the economic circuit, they sell their labor to companies. In exchange, they earn a salary, which they use to buy from companies and pay taxes.
  • State: A point of production and consumption. Its function is to use its enterprises to produce material goods and public services needed by society and consume goods and services from private companies. Their aim is to provide welfare. In the economic circuit, the State provides companies and families with goods and services, employs public workers, and levies taxes from families and businesses.

3. Production Factors: Resources, Capital, and Technology

To undertake their activities, businesses use four basic resources known as production factors: natural resources, capital, technology, and labor.

3.1. Natural Resources

Natural resources are elements provided by nature that have economic use. They include water, oil, animals, plants, etc. The exploitation of these resources gives rise to basic economic activity (agriculture, forestry, etc.).

Challenges Related to Natural Resources:

  • Exhaustion and Overuse: Consuming more resources than the planet can replenish poses a significant threat. Sustainable development practices are crucial to address this issue.
  • International Conflicts: Competition for and control over natural resources can lead to wars and internal conflicts.

3.2. Capital and Technology

Capital is the combination of non-natural resources needed for production. It includes:

  • Physical Capital: Material elements (e.g., machinery, buildings).
  • Financial Capital: Funds available for production (money).
  • Human Capital: Productive capacity, which depends on aspects such as training and experience.

Technology is the combination of knowledge applied to production processes. It can be:

  • Manual: A person provides strength and directly handles the tools.
  • Mechanized: People operate machines.
  • Automatic or Robotized: Tasks are performed by automated systems.