Fundamental Principles of Economic Systems and Production

Introduction to Economics and Necessity

Economy: The science that examines how society uses scarce resources to produce and distribute them efficiently. Necessity: The lack of something, coupled with the desire to satisfy it through satisfying goods and services.

Classification of Economic Goods

Economic Goods: An economic good is defined as being scarce as well as useful. It is obtained from land, labor, and capital. Classifications include: consumer goods, production goods, single-use, sustainable use, complementary, substitute, import, export, sectors 1, 2, and 3, public property, and private property.

Opportunity Cost and Economic Systems

Opportunity Cost: The value of goods and services that one must renounce to acquire others. It is the value of the best economic alternative given the resignation to devote resources to other specific activities.

Economic Systems: These define how society organizes itself to solve its economic problems. Features: The most important productive acts in every society (agriculture, livestock, industry), the techniques or sets of procedures performed, and the legal and political elements.

The Production Process and Its Sectors

Production: Human action consisting of obtaining goods and services that will be used to meet needs either directly or indirectly. In every production process, the utility of property increases. The concept of production includes manufacture, storage, distribution, and transportation. Production activities have three broad areas: primary, secondary, and tertiary.

• The primary sector comprises all productive activities devoted to obtaining resources from nature (e.g., livestock, agriculture).
• The secondary sector involves the whole activity of downstream resources (e.g., industry).
• The tertiary sector includes all activities involving the provision of services.

The New Economy and Technical Advances

New Economy: Transformations associated with technical advances that change systems, including production, organization, and communication (e.g., the Internet).

Production Function and Productivity

Production Function: It expresses all the possible relationships between quantities of inputs used and the amount of the total product obtained. The production function is unique to each manufacturer and product.

Productivity: This relates the amount of product obtained with the quantities of factors used.

Market Mechanisms and Demand

Market: A set of mechanisms allowing for an exchange of goods and services to satisfy the needs of society. Elements:

• Product: Traded for money; represents commodity exchange value.
• Applicants: Those who want to acquire certain products.
• Bidders: Those who offer and want to sell their products.

Demand: