Economic Sectors, Businesses, and the Role of Public Administration

Opportunity Cost and Production Possibilities

Scarcity, a relative concept, necessitates choice. Opportunity cost is what we forgo to obtain something else. The production possibilities frontier illustrates that economics is the science of choice. It highlights key concepts:

1. Lack of resources
2. Opportunity Cost
3. Potential output

Applications of the Production Possibilities Frontier

Economic efficiency involves leveraging resources optimally. Economic growth means increasing productive capacity.

Productive Sectors and Exchange

Productive sectors:

• Primary: Activities related to nature, such as agriculture, fisheries, livestock, and forestry.
• Secondary: Includes manufacturing, mining, construction, and energy sectors; transforming raw materials into manufactured goods.
• Tertiary: Service activities offering intangible products; for example, transportation, education, and health.

Services can be further divided:

• Private services: Can be placed on the market.
• Public services: Are produced by the state.

Exchange enables the division of labor and specialization.

• Barter: The exchange of one good for another.
• Disadvantages of Barter:
  1. Requires each individual to find someone who wants what they offer.
  2. Indivisibility of some goods.
  3. Not feasible with many participants.

Exchange and Money: Money is a generally accepted means of payment. It promotes exchange and efficiency.

Companies

A company is the basic production unit. It hires, purchases, and leases labor and other factors to produce and sell goods and services.

Reasons for the existence of firms:

1. Acquiring large amounts of financial resources.
2. Production Management.
3. Reduced costs.

The Company and Its Environment:

• Plant: Physical and organizational structure for producing a good or service.
• Industry: A set of firms producing the same good or service.
• Sector: A group of industries with similar characteristics.

Types of Businesses (According to Activity):

1. Industrial processing companies: Acquire raw materials and process them into products ready for consumption.
2. Trade: Buy goods and sell them at a higher price for profit.
3. Services: Offer consumers the enjoyment of an activity.

Types of Companies (According to Legal Structure):

• Individual: Owned and run by an individual.
• Social: Belongs to a person or group of persons or members (regular collective, irregular collective, limited).
• Limited: Partners contribute capital and are only responsible for their subscriptions, not actions.
• Anonymous: Capital is divided into small, equal parts (shares), facilitating large capital gatherings.
• Cooperatives: Partners share risks and benefits.

Financing of the Enterprise:

• Self-financing: Resources provided by the owners or shareholders.
• Borrowed funds: Resources obtained from outside the company (loans, bonds, commercial loans, etc.).
• Shares: Represent an aliquot of ownership of a company. Share performance depends on the benefits distributed to shareholders.

Families or Households

Families demand goods and services, seeking to maximize satisfaction. Their spending ability depends on income. They own productive resources, which they offer to businesses (circular flow).

Circular flow of income: The flow of payments from companies to families in exchange for work and other productive services.

The Public Sector

Consists of a set of organs and governments at least 3 levels:

1. Local authorities.
2. Autonomous regional governments.
3. Central administration (government, ministries, and national agencies).

Development of the Public Sector:

Macroeconomic policy comprises government measures designed to influence the economy's overall course.