Understanding Economic Activity: Production, Distribution, and Consumption
Understanding Economic Activity
Individual and Collective Needs
People have individual needs, such as food, clothing, and hygiene, while society has collective needs like healthcare, justice, and communication.
What is Economic Activity?
Economic activity encompasses all the jobs performed by workers to satisfy people’s needs.
Production, Distribution, and Consumption
Economic activity consists of three phases:
Production
In this phase, companies decide on the product, quantity, and manufacturing process. Types of goods include:
- Consumer goods: Satisfy consumer desires or needs.
- Intermediate goods: Machines and tools used to manufacture consumer goods.
Distribution
This phase occurs after production and involves delivering goods to consumers through storage, transport, and sale. Two steps are involved:
- Wholesale: Buying large quantities of products and selling them to companies.
- Retail: Buying smaller quantities from wholesalers and selling them to consumers.
Consumption
Buying goods and services allows people to satisfy their needs and consume products.
Types of Consumers
Our needs can be categorized as:
- Primary needs: Essential for life.
- Secondary needs: Enhance our well-being.
Factors Affecting Production
Key ingredients for production include:
Natural Resources and Raw Materials
Nature provides elements that we transform to meet societal needs. These limited resources could deplete if overexploited.
Labor
Human activity (physical or intellectual) required to produce goods or provide services.
Capital
Resources used to produce goods or services. Two types exist:
- Physical capital: Land, buildings, machinery, and raw materials.
- Financial capital: Money needed for production, including loans.
Technology and Expertise
Production requires technology. Expertise enables the design, construction, and use of machines. Three types of production exist: manual, mechanical, and high-tech.
Economic Agents
People, groups, or institutions involved in economic activities. Three types are:
- People: Main consumers.
- Public sector: Economic and social activities of the state.
- Companies: Main agents of production and distribution.
Economic Sectors
Economic activities are divided into four sectors:
Primary Sector
Produces food and raw materials. Includes agriculture, livestock farming, etc.
Secondary Sector
Transforms raw materials into manufactured products. Includes industry, construction, and energy exploitation.
Tertiary Sector
Provides services to people or companies, such as healthcare, education, transport, and tourism. It’s the fastest-growing sector.
Quaternary Sector
A lower-end tertiary sector with low-paying jobs requiring minimal training.
Quinary Sector
A new sector based on expertise, including information creation, distribution, and manipulation, and social, cultural, and economic innovations.
Economic Systems
Societies determine what products to make, how to make them, and for whom. Four types of systems exist:
Subsistence System
Characteristic of low-development societies where people produce for basic needs and trade surplus goods locally.
Capitalist System
Defends free competition and private ownership of production means. It’s the most widespread system today.
Planned Economy System
The state controls all aspects of the economy. It was prevalent in the 20th century but exists in only a few states today.
Alternative Economies
Rejects capitalism and promotes solidarity, respect for nature, and the common good.