Economic Activity: Production, Distribution, Consumption
Economic Activity: Production, Distribution, and Consumption
Economic activity refers to the different processes that occur during the production and consumption of goods and services. There are three phases: production, distribution, and consumption. People obtain the resources they need to live through it. The people, groups, or institutions involved in the economy are called economic agents. There are three main types of economic agents: the family, the company, and the state.
What Is Economic Activity?
It’s the term used to describe all the different jobs done by people to satisfy society’s needs. This provision and consumption of goods and services generates wealth within the community and is based on the concept that goods and services are produced as quickly and as economically as possible. The final product is then distributed and sold to the people that need them.
Production, Distribution, and Consumption
Production
Production provides goods and services for consumption. The production of goods combines the use of natural resources, skills, and labor.
- Consumer goods satisfy the desires or needs of the consumer (like food, clothes, computers, etc.).
- Producer goods are used to manufacture consumer goods (like machines and tools).
The provision of services, such as healthcare, transport, entertainment, or information, requires the creation and organization of, in this case, hospitals, transport networks, cinemas, and media channels.
Distribution and Sale
This includes the delivery and sale of goods and services. It involves the storage, transport, marketing, and sale of goods to the people. There are two steps in the sale process:
- Wholesale: Big businesses or wholesalers buy a large number of products and sell them to smaller companies. These smaller companies then sell the goods to individual consumers.
- Retail: Retail businesses buy a small number of goods from wholesalers and sell them directly to the public in shops.
Consumption
In this phase of economic activity, the product or service is used to satisfy a need or desire. There are two types of goods:
- Nondurable goods: Consumed in one or several uses (such as water or food).
- Durable goods: They are used for an extended period (cars, TVs, or electrical appliances in general).
Natural Resources and Raw Materials
Natural resources provide the raw materials for the production of goods. People extract, breed, or transform these resources to produce goods. As these resources are limited, it is important to protect them or find alternative supplies.
Labor
Goods need to be prepared before they can be sold. For example, we consume wood, but not in its original state, the same as fruit; they have been manufactured or harvested before consumption. The provision of services requires infrastructure and organization. Both processes require different forms of labor. People work to be able to satisfy their needs, which is why it is considered a basic human right. Most people work in companies or in public administration. People who work for themselves, such as farmers and craftsmen, are self-employed.
Capital and Technology
Capital includes all of the resources used to produce goods or services. There are three types:
- Physical capital includes the building, machinery, and raw materials needed for the production of goods or services.
- Human capital means the skills acquired by business people in the workplace and those acquired by employees from company training programs.
- Financial capital is the money needed to begin production. This includes the money in the companies’ bank accounts, as well as stocks and other financial assets.
Technology consists of the methods used to produce goods and services. It forms part of the physical capital and is increasingly important to society and is crucial to economic growth.