Understanding Economics: Concepts and Systems
Maslow’s Hierarchy of Needs
Maslow’s physiological needs are the basic human needs that depend on satisfaction for survival. The most important needs are innate, unlearned, and intuitive.
- Security: These needs serve to consolidate what has been obtained. When these needs are met, the individual feels safe and protected.
- Social: These needs are related to an individual’s emotional development and the need for social association.
- Self-Esteem: These needs affect an individual’s self-improvement and confidence. They can be of two types: those relating to self-esteem and those associated with reputation.
- Self-Realization: This consists of achieving ideals or goals proposed by the individual.
Characteristics of a Self-Actualized Person
- Clear and efficient perception of reality.
- Accepts themselves without shame or guilt.
- Spontaneous and open to new experiences.
- Independent and autonomous.
- Creative and original.
- Appreciates solitude and privacy.
- Strong interpersonal skills.
- Good sense of humor.
- Non-aggressive and moral.
Classification of Companies
By Business Activity:
- Primary Sector: Companies that work directly with natural resources (e.g., agriculture, livestock, fisheries, logging).
- Secondary Sector: Companies dedicated to industrial activities or processing raw materials into consumer or capital goods (e.g., manufacturing, energy, construction).
- Tertiary Sector: Companies that provide services (e.g., transportation, telecommunications, commerce, hospitality, health, education).
By Size:
- Micro (up to 10 employees)
- Small (10-50 employees)
- Medium (50-250 employees)
- Large (over 250 employees)
By Ownership:
- Public Companies: Capital belongs entirely to the state, communities, or other public institutions.
- Private Companies: Capital belongs to individuals.
- Mixed Companies: Part of the capital belongs to a public entity and the rest to individuals.
By Area of Operation:
- Local
- Regional
- National
- Multinational
Economic Sectors
Primary Sector: Firms performing activities directly related to natural resources. This sector includes agriculture, livestock, fisheries, and logging.
Characteristics:
- Production varies greatly from year to year.
- Works with living beings, and many products are perishable.
Secondary Sector: The transformation of raw materials into consumer goods or capital goods through physical or chemical processes. This sector includes industrial activities, the energy sector, and construction.
Tertiary Sector: Includes heterogeneous activities such as transportation, telecommunications, commerce, hospitality, health, and education.
Causes of Growth in the Tertiary Sector:
- Increased incorporation of women into the labor market.
- Increased purchasing power.
- Tourism boom.
- Increase in services provided by the public sector.
Factors of Production
Natural Resources: Nature offers resources used in the production process, such as arable land, oil, and water. These resources can be classified as renewable and non-renewable.
Labor: Human activity, physical or intellectual, used to produce goods or provide services in exchange for payment.
Capital:
- Physical Capital: Elements used in production.
- Human Capital: Everything that contributes to raising the productive capacity of human beings.
- Financial Capital: Available funds for the purchase of physical capital or a financial asset.
Capital is a set of real assets that contribute to the development of economic activity by helping to produce other goods and services.
Economic Systems
Market Economy:
Advantages:
- Economic agents can choose freely to consume and produce according to their preferences and availability.
- Price system governs shortages and surpluses.
- Efficient production system with incentives.
Disadvantages:
- Unequal income distribution.
- Market failures.
- Instability of the economic cycle.
Centrally Planned Economy:
Advantages:
- High employment levels.
- Basic needs of the population are covered.
- Egalitarian income distribution.
Disadvantages:
- Forecasting errors.
- Lack of incentives.
- Excessive bureaucracy and inefficiency.
- Limited capacity for adaptation and reaction.
Mixed Economy:
Advantages:
- Freedom of action for consumers and producers.
- The state can intervene to correct market imbalances.
Disadvantages:
- Combines disadvantages of the other two systems.
- Specific issues depend on the role of the state and the market in each country.
Types of Goods
According to their Materiality:
- Goods
- Services
According to their Scarcity:
- Free goods
- Economic goods
Classified by Function:
- Consumer goods
- Capital goods
According to their Degree of Elaboration:
- Intermediate goods
- Final goods
According to their Relationship with Other Goods:
- Complementary goods
- Substitute goods
- Independent goods
According to their Consumption:
- Private goods
- Public goods
Divisions of Economic Science
Positive Economics: Studies what was or could be, objectively analyzing economic phenomena as they happened.
Subdivisions:
- Economic Theory: Studies with a high degree of abstraction and generality.
- Microeconomics: Studies the behavior of individual economic agents. Microeconomic theories aim to understand how scarce resources are allocated to alternative uses and the role of markets and prices.
- Macroeconomics: Studies the performance of the whole economy to get a simplified vision that allows us to understand and act on the economic activity of a country or countries. GDP measures the magnitude of a country’s production of goods and services during a determined period.
- Applied Economics: Studies with a lesser degree of abstraction and greater detail.
Normative Economics: Studies what actions should be taken and recommends ways to improve reality.