Understanding Economic Activity: Key Concepts & Systems
Understanding Economic Activity
Economic activity encompasses all human actions aimed at organizing the production, distribution, and consumption of goods and services.
Needs and Goods
Needs can be basic, such as food, housing, or energy, or non-essential, like a car. Goods are products, both tangible (food) and intangible (services), that satisfy these needs.
Resources
Resources are the natural substances and materials used to produce goods that meet human needs. These resources originate from the Earth’s atmosphere, water, and subsoil.
Economic Agents
Human needs are unlimited, but natural resources are scarce. Therefore, it’s essential to organize the production of goods and decide who produces, how they produce, and for whom they produce.
Firms or Production Units
Firms are the basic units involved in manufacturing goods under an employer. Their function is to produce, distribute, and sell materials and services. Private enterprises aim for profit, while public companies pursue social or public interest goals.
Family and Consumer Units
Families are the basic units of consumption. They consist of one or more individuals and spend money on goods and services to meet their needs.
The State or Public Sector
The state functions as both a production and consumption unit. It produces essential public goods and services for society and consumes goods and services to promote welfare.
Economic Systems
Economic systems define how economic actors organize economic activity. The main systems are socialist (planned economy) and capitalist (market economy).
Socialist System
In a socialist system, the state owns the means of production (capital, land, machinery, etc.) and organizes businesses.
Note: Socialist systems primarily exist in China, Cuba, Vietnam, and North Korea.
Capitalist System
In a capitalist system, the market regulates business, and private individuals or entities own the means of production.
The Market Economy
The market is the arena for buying and selling goods or services. Transactions can involve direct swaps or exchanges for money.
Supply and Demand
Supply refers to the quantity of products and services available for consumption, determined by companies or producers. Demand is the quantity of goods and services that people intend to consume, determined by consumers.
Imperfect Competition
From an economic perspective, competition is often imperfect, occurring when one company controls the supply.
Monopoly
A monopoly exists when only one supplier dominates the market. This supplier can set prices to maximize profits due to the absence of competition.
Social Implications
From a social perspective, monopolies may not invest in socially beneficial projects, which can harm the poor.
The Job Market
Market rates vary depending on the traded commodity. Markets can involve factors such as land, natural resources, capital, technology, and labor.
Operation of the Employment Market
The labor market consists of the demand for labor from companies and the supply of labor from workers.
Job Market Focus
The job market includes skilled workers performing tasks requiring high levels of training, generally associated with better working conditions and higher wages. The secondary labor market comprises workers with low qualifications, leading to worse working conditions, low wages, and job insecurity.
Working Conditions
Working conditions are governed by labor legislation, collective agreements, and work contracts.