Economic Agents and Business: Understanding the Market
**Economic Agents: Understanding Their Roles**
There are three types of economic agents:
- Consumers: Grouped in families or households, they decide which goods to consume to meet their needs.
- Companies: Make decisions on the production and distribution of goods in exchange for a benefit.
- The Public Sector: Formed by the government, it aims to maximize the welfare of society as a whole.
Economic Rationality
Economic rationality consists of choosing the option that provides the most utility or welfare among the available options.
Consumers
Consumers, grouped in families, make decisions on consumption, that is, on which goods and services best meet their needs. Key factors include:
- Preferences: Preferences between two or more goods with similar characteristics that meet the same need.
- Income Level: Often, individuals cannot satisfy their needs to purchase particular goods due to a lack of economic resources. Income level determines spending capacity.
Income
Income is the value or price paid for the use of a productive resource in a given period. It can have different names:
- Salary: If it is payment for labor.
- Rent: If it comes from natural resources.
- Interest: If it originates from capital.
Composition of Families
Family members are consumers but do not necessarily participate in the production process. They are classified into:
- Business: Those who organize and coordinate production. This varies by company size. In small and medium businesses, ownership and management often coincide in the same person. In large companies, owners and managers are usually different people.
- Workers: The human element involved in the production process in return for a wage. They are valuable within the company, and their capabilities are enhanced through training and experience. Today, the term “work” refers to human activity that is: personal, voluntary, performed for others, dependent (under the direction of an employer), and paid (in exchange for wages).
- Rentiers: Those who derive income from factors of production, capital, and natural resources. For example, a person who owns and rents apartments.
- Strict Consumers: Individuals who are not involved in the production process in any way.
Companies
Companies make decisions regarding the production and distribution of goods and services. Their main objective is to maximize corporate profits.
- Maximize Profits: Business profit = revenue – expenses.
- Stabilize and Grow: Ensuring customers in existing markets is essential before starting operations in other geographical areas or similar business fields. Over time, companies become more efficient, producing more units at lower prices. To generate employment and wealth, it is common for large industrial companies to outsource, hiring third parties to carry out industrial tasks.
- Respecting the Environment: Companies are responsible for many social problems, such as air or water pollution.
The Public Sector
The public sector operates using the authority conferred by law and is not subject to the market, as companies are. It consists of the administration, public enterprises, and autonomous agencies. The public sector distributes its power across three spheres of influence:
- Local Government: Performs functions close to the city (municipality). It has its own budget, and its revenue comes mainly from the state.
- Regional Administration: Its income comes largely from the state, but it also has its own income (e.g., education).
- Central Administration: This is carried out by the state and its autonomous bodies. It has the greatest number of tasks assigned (e.g., social security).
**Business Types: Classification and Structure**
Businesses are classified according to:
The Activity in Which They Operate
- Primary Sector: Companies engaged in the exploitation of natural resources.
- Secondary Sector: Companies engaged in processing or industrial activities.
- Tertiary Sector: Includes two groups of firms: trade (engaged in the sale of unprocessed goods) and services.
The Ownership of Factors of Production
- Private Companies: Owned by individuals or other companies.
- Public Companies: Owned by the state or any public entity.
The Legal Structure
- Individual Companies: The simplest way to establish a business. They belong to a natural person who directs the business and is liable for the company’s debts, even with their personal property.
- Business Partnerships or Companies: They have one or more owners who provide the inputs necessary for operation. The essence of these companies is that the partners’ liability is limited to the amount contributed, so minimum contributions are set to ensure solvency.
Components of a Company
The Human Element
All persons directly linked to the enterprise.
Capital Goods or Production
Economic assets owned by the company. These can be:
- Fixed Capital: Goods and equipment intended to contribute to sustainable productive activity.
- Circulating Capital: Assets that are renewed from time to time and are in constant circulation.
The Organization
The employer defines the set of authority relationships, coordination, and communication required for the activity of the members of the enterprise, both internally and externally. Regarding internal organization, it is common to distinguish a number of areas with specialized functions:
- Procurement: Controls the purchase of materials.
- Production: Makes the product or service that is the subject of the business.
- Commercial: Markets and distributes the product in the market.
- Human Resources: Organizes and manages the company’s staff.
- Financing and Investment: Raises the funds necessary for the proper functioning of the company and manages the investment policy.
- Management: Organizes and coordinates the other areas to achieve the objectives set.
The Environment
The company is not an isolated entity but operates in an increasingly globalized world where borders between nations are blurred. The environment includes any external factors that may affect the company’s performance. We can distinguish:
- General Environment: The group of factors that affect all companies.
- Specific Environment: Includes those factors that influence the practical operation of a specific company.