Understanding Business, Finance, and Economics
Shares
An action, or share, represents part ownership (an aliquot) of a company. Title D Shares are equity because their performance depends on whether profits are distributed to shareholders.
Ways to obtain resources from outside the firm:
- Banks, savings banks, and other financial institutions through loans and credits.
- The issuance of bonds or debentures.
- Trade credit by suppliers or the company.
Company
A company is the basic unit of production. It hires and purchases labor and other factors in order to produce and sell goods and services.
According to the SAR, it is an entity composed of capital and labor as factors of production, and dedicated to industrial, commercial, or service activities for profit and the consequent responsibility.
Companies fall into three categories:
- Industrial: These are processors. They buy raw materials that are processed into products ready for consumption (extractive, metallurgical, etc.).
- Commercial: They purchase goods and then sell them at a higher price in order to obtain a profit (retailers, etc.).
- Services: These do not produce or sell material goods but offer the consumer the direct enjoyment of the activity.
Types of businesses according to their legal nature:
- Individual: The person performing the core activities.
- Social: It belongs to one or more persons or a group of partners (regular collective, irregular collective partnership).
- Limited: Partners contribute capital.
- Anonymous (Corporation): The contributions of partners are divided into shares.
- Anonymous Labor: The partners contribute capital and labor.
- Cooperative: The partners share risks and benefits.
Public Sector
The public sector encompasses a wider field than the nation-state of modern political organizations. It consists of public bodies and departments with at least three levels of government:
- Local government (municipalities and county councils)
- Regional governments and autonomous regions
- Central administration (government ministries and other agencies of national character)
Taxes
Taxes are levied on income and on goods and services, thus reducing private income and private spending. They are also a resource for the public sector. The tax system, that is, all taxes, also serves to reduce the incentive to carry out certain activities subject to taxation, such as polluting or smoking, and to promote others that are less taxed, such as buying a home, studying, or researching.
Expenses
The state spends on certain goods and services, such as defense, healthcare, and education. It also provides transfers of resources to individuals. Transfers are payments made by the public sector to families that are not the result of current economic activity.
Economic System
An economic system is the way individuals organize a society to solve their basic economic problems.
Economic Theory
Economic theory is the set of ideas and opinions of a group of important economists.
Market
A market is any social institution in which goods and services, as well as productive factors, are traded freely.
Circular Flow of Income
The circular flow of income is the flow of goods and services and payments between households, businesses, and the public sector. This flow illustrates how a market economy works.
Price of a Good
The price of a good is its exchange ratio for money; that is, the number of euros required to obtain one unit of the good.