Fundamentals of Economic Systems and Global Trade

How Economic Activity Works

Arable farming is one example of economic activity. The concept of economic activity refers to jobs performed by people to satisfy society's needs and to generate wealth.

Production

Production involves the creation of goods and services. This includes:

• Types of goods depending on production.
• Intermediate goods.
• Provision of services.

Distribution

This refers to the delivery and state of goods and services. There are two primary steps in sales:

• Wholesale
• Retail

Consumption

Consumption is the use of a good or service to satisfy personal needs. There are two types of goods depending on consumption:

• Durable goods
• Non-durable goods

Factors Affecting Production

Production relies on various resources and capital:

• Human Capital: Includes employees and businessmen.
• Capital:
  • Physical Capital: Machinery, furniture, and raw materials.
  • Financial Capital: The money necessary to begin production.

These are the essential resources used to produce goods and services.

The Market Economy

Price and Inflation

The price is the amount of money we pay for a good or service. It depends on the number of products available.

Inflation is the general rise of prices for goods and services within a country. It is caused by:

• An increase in the cost of production.
• An increase in the currency in circulation.

Economic Systems

Capitalism and Market Economies

The capitalist system or market economy is based on:

• Private property.
• Free market: Prices are decided by supply and demand.

Subsistence and Planned Economies

• Subsistence Economy: People must meet their own needs, and there is no surplus.
• Planned Economy: There is no private property; the state owns the means of production.

A Global System

Understanding Globalization

Globalization is the process by which businesses or other organizations develop on an international scale. This phenomenon began in the second half of the 20th century and is based on:

• Multiculturalism: Driven by the absence of immigration restrictions.
• Free Trade: Achieved by eliminating trade limitations, resulting in economic interdependence.

Consequences of Globalization

This process has led to the creation of international organizations that can mobilize members worldwide.