Economic Activity: Production, Distribution, and Systems

Economic Activity

Economic activity is the means by which we obtain the products and services to cover our needs. It involves several phases:

• Production: The generation of goods and services.
• Distribution: The allocation of goods and services.
• Consumption: The acquisition of products to meet needs.

Economic Sectors

• Primary Sector: Agriculture, livestock, fishing, and forestry.
• Secondary Sector: Economic activities that transform raw materials into manufactured products.
• Tertiary Sector: A variety of activities that do not produce tangible goods.
• Quaternary Sector: Research, design, management, and development.

Economic Agents

• Families: Involved in production, providing labor and consuming goods and services.
• Enterprises: Produce goods and services for profit, employing labor and providing products to other companies.
• Public Sector: State-owned entities.
• Private Sector: Belonging to individuals and private entities.

Types of Companies

• Microenterprise: Fewer than 10 employees; annual revenue of up to 2 million €.
• Small Enterprise: Fewer than 50 employees; annual revenue between 2 and 10 million €.
• Medium-sized Company: Up to 250 employees; annual revenue of up to 50 million €.
• Large Company: More employees and higher equity.

Role of the State

The state develops rules regulating economic activity, stimulates private sector companies in strategic sectors, creates and manages public services, acquires goods and services, and generates jobs.

Taxes

Taxes are payments that individuals and businesses must make to a public body.

• Direct Taxes: Paid directly on income and property of individuals and companies (e.g., income tax).
• Indirect Taxes: Paid when purchasing goods and services (e.g., VAT).

Productive Factors

• Labor: Human activity, both physical and intellectual, necessary to produce goods and services. Employers and employees negotiate work conditions, formalized in a contract. Labor laws are established through negotiations between the state, employers, and employees. Employers are represented by employers' associations, and employees by trade unions.
• Natural Resources: All resources that are not man-made.
• Capital: Resources used to produce goods and services.
  • Physical Capital: Buildings, machinery, tools, computers, etc.
  • Human Capital: Training and qualifications of employees.
  • Financial Capital: Money needed to fund and maintain a company.
• Technology: The set of procedures used to produce goods and services. Production can be manual, mechanized, or highly technological.
• Knowledge and Know-How: Knowledge and skills necessary for production.

Economic Systems

Economic systems determine how goods and services are produced and distributed, and how profits are allocated.

• Subsistence System: Traditional system where families produce everything they need, selling only surpluses. Common in underdeveloped regions.
• Communist System: Central planning, no private ownership of production means. The state controls all aspects of the economy, deciding what to produce, in what quantity, setting prices, and controlling distribution. Examples include Cuba, North Korea, and China.
• Capitalist System: Free market system characterized by:
  • Pursuit of profit
  • Private property
  • Supply and demand
  • Competition