Understanding Economics: Concepts and Systems

Maslow’s Hierarchy of Needs

Maslow’s physiological needs are the basic human needs that depend on satisfaction for survival. The most important needs are innate, unlearned, and intuitive.

  • Security: These needs serve to consolidate what has been obtained. When these needs are met, the individual feels safe and protected.
  • Social: These needs are related to an individual’s emotional development and the need for social association.
  • Self-Esteem: These needs affect an individual’s self-improvement and confidence. They can be of two types: those relating to self-esteem and those associated with reputation.
  • Self-Realization: This consists of achieving ideals or goals proposed by the individual.

Characteristics of a Self-Actualized Person

  • Clear and efficient perception of reality.
  • Accepts themselves without shame or guilt.
  • Spontaneous and open to new experiences.
  • Independent and autonomous.
  • Creative and original.
  • Appreciates solitude and privacy.
  • Strong interpersonal skills.
  • Good sense of humor.
  • Non-aggressive and moral.

Classification of Companies

By Business Activity:

  • Primary Sector: Companies that work directly with natural resources (e.g., agriculture, livestock, fisheries, logging).
  • Secondary Sector: Companies dedicated to industrial activities or processing raw materials into consumer or capital goods (e.g., manufacturing, energy, construction).
  • Tertiary Sector: Companies that provide services (e.g., transportation, telecommunications, commerce, hospitality, health, education).

By Size:

  • Micro (up to 10 employees)
  • Small (10-50 employees)
  • Medium (50-250 employees)
  • Large (over 250 employees)

By Ownership:

  • Public Companies: Capital belongs entirely to the state, communities, or other public institutions.
  • Private Companies: Capital belongs to individuals.
  • Mixed Companies: Part of the capital belongs to a public entity and the rest to individuals.

By Area of Operation:

  • Local
  • Regional
  • National
  • Multinational

Economic Sectors

Primary Sector: Firms performing activities directly related to natural resources. This sector includes agriculture, livestock, fisheries, and logging.

Characteristics:

  • Production varies greatly from year to year.
  • Works with living beings, and many products are perishable.

Secondary Sector: The transformation of raw materials into consumer goods or capital goods through physical or chemical processes. This sector includes industrial activities, the energy sector, and construction.

Tertiary Sector: Includes heterogeneous activities such as transportation, telecommunications, commerce, hospitality, health, and education.

Causes of Growth in the Tertiary Sector:

  • Increased incorporation of women into the labor market.
  • Increased purchasing power.
  • Tourism boom.
  • Increase in services provided by the public sector.

Factors of Production

Natural Resources: Nature offers resources used in the production process, such as arable land, oil, and water. These resources can be classified as renewable and non-renewable.

Labor: Human activity, physical or intellectual, used to produce goods or provide services in exchange for payment.

Capital:

  • Physical Capital: Elements used in production.
  • Human Capital: Everything that contributes to raising the productive capacity of human beings.
  • Financial Capital: Available funds for the purchase of physical capital or a financial asset.

Capital is a set of real assets that contribute to the development of economic activity by helping to produce other goods and services.

Economic Systems

Market Economy:

Advantages:

  • Economic agents can choose freely to consume and produce according to their preferences and availability.
  • Price system governs shortages and surpluses.
  • Efficient production system with incentives.

Disadvantages:

  • Unequal income distribution.
  • Market failures.
  • Instability of the economic cycle.

Centrally Planned Economy:

Advantages:

  • High employment levels.
  • Basic needs of the population are covered.
  • Egalitarian income distribution.

Disadvantages:

  • Forecasting errors.
  • Lack of incentives.
  • Excessive bureaucracy and inefficiency.
  • Limited capacity for adaptation and reaction.

Mixed Economy:

Advantages:

  • Freedom of action for consumers and producers.
  • The state can intervene to correct market imbalances.

Disadvantages:

  • Combines disadvantages of the other two systems.
  • Specific issues depend on the role of the state and the market in each country.

Types of Goods

According to their Materiality:

  • Goods
  • Services

According to their Scarcity:

  • Free goods
  • Economic goods

Classified by Function:

  • Consumer goods
  • Capital goods

According to their Degree of Elaboration:

  • Intermediate goods
  • Final goods

According to their Relationship with Other Goods:

  • Complementary goods
  • Substitute goods
  • Independent goods

According to their Consumption:

  • Private goods
  • Public goods

Divisions of Economic Science

Positive Economics: Studies what was or could be, objectively analyzing economic phenomena as they happened.

Subdivisions:

  • Economic Theory: Studies with a high degree of abstraction and generality.
  • Microeconomics: Studies the behavior of individual economic agents. Microeconomic theories aim to understand how scarce resources are allocated to alternative uses and the role of markets and prices.
  • Macroeconomics: Studies the performance of the whole economy to get a simplified vision that allows us to understand and act on the economic activity of a country or countries. GDP measures the magnitude of a country’s production of goods and services during a determined period.
  • Applied Economics: Studies with a lesser degree of abstraction and greater detail.

Normative Economics: Studies what actions should be taken and recommends ways to improve reality.