Factors of Production, Economic Systems, and Sectors

  • Work is human activity, both physical and intellectual, to produce goods and services. Most workers perform their work for others, i.e., a company-employed job or for the state in exchange for a wage. However, there are also self-employed workers, i.e., those working independently. The laws establishing labor activity involve complex negotiations between the state, employers, and employees. Employers are represented by employer associations, and employees by unions.

    Factors of Production

    The production process uses many resources offered by productive nature: earth, water, air, plants, animals, minerals, and natural energy resources. Some of these resources are renewable, i.e., they are not exhausted by their use or can be regenerated.

    The knowledge of people is a factor of economic growth of the first order. Therefore, if a country wants a modern economy, it needs a competitive education system and quality research.

    • Physical capital consists of tangible assets such as buildings, machinery, tools, equipment, transportation elements, etc.
    • Human capital refers to the training or qualifications of workers and their experience. Generally, the more skilled and experienced workers are, the greater the productivity of an enterprise.
    • Financial capital is the money needed to start a company and keep your business productive. This includes enough money, loans, or government grants to start a business or to continue trading.

    Technology and Production

    • Manual production is one in which the human being provides the strength and manages the tools. For example, a farmer tilling the soil with a hoe.
    • Mechanized production is one in which the machine provides the force, but the worker handles the tools.
    • Technological production is one in which the machines provide the power and control the tools, while workers are limited to programming the machines and monitoring their proper operation.
  • Economic Systems

    The livelihood system: families produce everything they need to cover their basic needs. They cultivate the land for food, build their houses with materials from the environment, and make their own clothes, etc. Only what they don’t need is sold or exchanged in the local market, where they can also purchase items that some people made by hand.

    The communist system: the central planning system does not recognize private property of the means of production. The state controls all financial aspects of the economy. The business owner decides what to produce and in what quantity to meet the social needs it deems appropriate, and sets the prices of products.

    The capitalist system: capitalism, also known as a free market economic system, is dominant in today’s world. This system has four main features:

    • Private ownership of the means of production: land, technology, business, etc.
    • The pursuit of profit as an engine of economic activity.
    • Regulating the number of products made by companies and their price through the law of supply and demand.
    • The existence of free competition. This means that any individual or company can perform the activity they want.
  • * Exceptions to these rules:

    • Monopoly: a company controls the production and sale of a product.
    • Oligopoly: several companies control the production and sale of a product.
    • State intervention: the state can intervene in the economy to avoid monopolies, protect consumers, etc.

Economic Sectors

  • The primary sector includes activities to obtain food and raw materials from the environment: agriculture, livestock, fisheries, and forestry.
  • The secondary sector includes economic activities that transform raw materials extracted from nature into manufactured products: the economic industry, construction, mining, and exploitation of energy sources (water, oil, gas, etc.).
  • The tertiary sector comprises a wide range of activities that, unlike the primary and secondary sectors, do not produce a tangible good but provide a service to society. They are, for example, trade, transport, health, and education.