Economic Activities, Concepts, and Agents
Types of Economic Activities
In any human community, there is a division of labor, which benefits all its members. There are three types of economic activity: primary, secondary, and tertiary.
According to the hypothesis of the three sectors, the more advanced or developed an economy is, the greater the importance of the service sector and the smaller the importance of the primary sector. Economic activity is different from the economic act.
Primary Economic Activities
These activities are dedicated purely to the extraction of natural resources, whether for consumption or marketing.
Primary activities include: agriculture, livestock, timber and commercial fishing, mining, etc.
Secondary Economic Activities
This sector refers to industrial activities, those that transform the resources of the primary sector.
This includes light industries producing goods for immediate consumption, such as food, shoes, bags, and toys, as well as heavy industries producing machinery and other inputs for other sectors. Manufacturing industries are responsible for the development of more complex products through the transformation of raw materials.
Service Activities
Through these activities, the human population finds comfort and convenience. They basically consist of providing services, such as communication and tourism.
In Mexico alone, 54% of the population is engaged in service activities. Within this sector, there is an important division: financial economic activity.
Basic Economic Concepts
- Benefit: The result of the difference between the costs and income from an economic activity. If expenses are higher, losses will occur.
- Good: Anything that fulfills a need and has a value.
- Service: A benefit intended to meet a personal or social need, but not for the production of a physical object.
- Cost of Living and Inflation: The cost of living is the minimum amount of expenditure necessary to obtain essential goods and services. It’s calculated by adding the value of a set of products, and this result defines the Consumer Price Index (CPI). Rising commodity prices are what we call inflation.
- Investment and Speculation: Investment is the amount of money spent to start a business or to maintain and improve it, in order to make a profit. When a quick profit is obtained from a business based solely on the price of goods, it is considered speculation.
- Market: The set of consumers who demand goods and services, and all the producers who offer them.
- Production and Productivity: Production refers to the goods and services generated by an economic activity. The relationship between employees and the means of production determines productivity. High productivity with limited means indicates high efficiency. Low productivity despite using many resources indicates low efficiency.
- Gross Domestic Product (GDP) and GDP per Capita: GDP is the total value of goods and services produced in a territory over a year. GDP reflects the wealth or income generated in that territory. To know the average income or wealth of its population (GDP per capita), divide the GDP of the territory by the number of its inhabitants.
Economic Agents
- Families: Participate in production and consume goods and services.
- Companies: Dedicated to the production of goods and services for financial gain. To sustain their business, they need families who provide labor (and receive wages) and who buy and sell to other companies.
Companies can be classified in different ways:
- Public or private.
- Micro, small, medium, or large enterprise.
- Individual or corporate.
- State:
- Regulates economic activity.
- Encourages private sector activity.
- Creates companies in strategic sectors.
- Provides public services.
- Generates employment.
To finance all of this, the state collects taxes.