Understanding Primary Needs, Production Factors, and Economic Sectors

Posted on Mar 29, 2025 in Business Administration and Management (BAM)

Understanding Basic Economic Principles

Primary Needs

Primary needs: These are essential for survival and maintaining a dignified life as a citizen. Examples include:

  • Food
  • Housing

Secondary Needs

Secondary Needs: These are more evolved needs related to human beings as social beings. Examples include:

  • Leisure
  • Communication

Factors of Production

Land

Encompasses all resources extracted directly or indirectly from nature (raw materials). Examples include trees for paper. They are classified into:

  • Renewable (not exhausted)
  • Non-renewable (exhausted)
  • Mixed (reasonable exploitation and sustainable management)

Labor

Includes all human activity dedicated to the production of goods and services to satisfy needs and wants (e.g., a baker).

Capital

Includes all goods produced by humans not intended for direct use, but for the production of other goods and services (e.g., tools).

Classification of Goods and Services

According to Scarcity or Abundance

  • Economic Goods: Require effort to obtain.
  • Free Goods: Available without effort.

By Function

  • Consumer Goods: Directly satisfy a need.
  • Productive Assets (Capital): Used to produce other goods.
  • Durables: (e.g., electrical appliances)
  • Perishables: (e.g., food)

According to Degree of Elaboration

  • Intermediate Goods: Require further transformation.

According to Relationship to Each Other

  • Complementary Goods: Necessary to consume together.
  • Substitutable Goods: Satisfy the same need.

According to Use

  • Private Goods: For private use.
  • Public or Collective Goods: (e.g., a park)

How to Choose: Key Economic Concepts

  1. Opportunity Cost: What you must give up to obtain something.
  2. Sunk Costs: Costs already incurred that should not influence future decisions.
  3. Marginal Analysis: Making decisions by balancing additional benefits against additional costs.
  4. Incentives: People change their behavior in response to rewards.

Positive Economics

Economic analysis that describes how the economic reality is and predicts how it might vary in response to certain events.

Economic Rules

A set of proposals, including judgments, about the convenience of taking certain steps to improve the economic reality.

Determinants of Production

  1. Human Capital: The training, experience, and skills of workers (combination of knowledge and skills).
  2. Organizational Administration: Correct organization of resources.
  3. Technological Change and Investment: Ability to produce more in the same amount of time.

The Economic Sectors

  • Primary Sector: Extracts raw materials directly from nature (e.g., agriculture).
  • Secondary Sector: Transforms raw materials into processed products (e.g., industry).
  • Tertiary Sector: Provides services to the population or other companies (e.g., transport).

The Production Possibility Frontier (PPF)

Represents the maximum production of goods and services that can be obtained with available resources, valid for individuals, corporations, or countries.

Productivity

Output / factors used

Apparent Labor Productivity

Total value of everything produced / number of employees

Percentage Increase Example

0.36 – 100%

0.37 – xx = 0.37 x 100 / 0.36