Understanding Economic Activity: Production, Marketing, and Consumption
What is Economic Activity?
Economic activity is the set of activities performed by humans tailored to meet their needs. That is, economic activities aim to produce goods and provide services people need or want.
Economic activity is also the quickest and least expensive way to obtain these products and services, as needs and desires can be unlimited, but resources are scarce and limited.
Once those assets are produced, it is required to distribute and sell them so that they reach those who need and want them.
Production, Marketing, and Consumption
Production
Production is combining natural resources, techniques, and work to obtain goods or services to be consumed by people.
- Consumer goods: Directly meet the needs of consumers.
- Productive assets or intermediate goods: Machines and tools used for the consumption of goods and production.
Marketing
After the production site comes marketing, or the distribution and sale of goods and services. Marketing includes customer service and the stages of storage, transportation, and sale, needed to bring goods and services to people.
- Wholesale: The wholesaler buys large quantities of products and sells them to other traders or companies.
- Retail: The retailer buys small quantities from wholesalers and sells them to the public in stores.
Consumption
Consumption is the purchase of goods and services that allow people to satisfy their needs.
Production Factors
The three factors necessary to produce goods or services are natural resources, labor, and capital.
- Natural resources: Vegetation, animals, forests, minerals, oil, or water are resources found in nature. Through their transformation, taming, or extraction, they allow the production of new goods.
- Labor: Labor is all human activity used to produce goods or provide useful services to our society. The most common type of work is working for someone else, that is, working in a company or in the administration.
- Capital: To produce goods or services, capital is needed. Primarily to acquire land, machinery, buildings, or facilities, but also to purchase the necessary raw materials to begin production.
The Market Economy
What is the Market Economy?
The fundamental idea of the market economy is that with free supply and demand, prices are fair enough to allow people to meet a number of needs.
Supply and Demand
- Market, seller, and buyer: The market is the place where goods are bought and sold. The market aims to match sellers, who seek to obtain greater benefits from the products sold, and buyers, who seek to satisfy their needs with the least expenditure.
- The price of the products: The price depends on the number of products and buyers. If supply is scarce and there are many buyers who want the same product, the price goes up. On the other hand, if there is a large supply of the same product and few who want to buy it, the price tends to fall.
- Law of supply and demand: This confrontation of interests between sellers and buyers, who want maximum benefits, is allowed to set the price.
- Advertising: It is necessary to publicize the products or services a company offers so that the potential consumer is informed. This advertising presents the product well and shows its qualities or its function: it is necessary and beneficial to the public.