Fundamentals of Economics: Sectors, Enterprises, and Systems
Understanding Economic Activity and Human Needs
People have many needs: food, clothing, shelter, medical attention, among others. Economic activity is any process by which we obtain the products and services that meet those needs.
Economic activities cover three stages:
- Production
- Distribution
- Consumption
Economics is the science that studies all these aspects.
Economic Sectors Classification
Economic activities are traditionally divided into three main sectors:
Primary Sector
Comprises activities to obtain food and raw materials directly from the environment:
- Agriculture
- Livestock
- Fisheries
- Forestry
Secondary Sector
Includes economic activities that transform raw materials:
- Industry
- Construction
- Mining
Tertiary Sector (Services)
Comprises a wide range of activities that provide services to society. Examples include: trade, transport, health, and education.
The Enterprise and Business Structure
An enterprise is dedicated to the production of goods and services in order to generate economic benefit.
Classification by Ownership
Companies can be classified by ownership:
- Public: State-owned.
- Private: Belonging to individuals or groups.
Classification by Size
Companies can also be classified by size, based on criteria such as the number of workers employed or their billing (revenue):
- Microenterprise: Fewer than 10 workers.
- Small: Fewer than 50 workers.
- Medium: Up to 250 workers.
The Role of the State in the Economy
The State performs several crucial functions regarding economic activity:
- Makes rules governing economic activity.
- Encourages private sector activity through grants and subsidies.
- Creates businesses in strategic sectors.
- Provides public services.
- Generates many jobs, as it requires workers for public services.
Work and Capital
Work Definition and Types
Work is human activity, both physical and intellectual, needed to produce goods and services.
Most workers develop their work for others; i.e., a company or the state employs them in exchange for a wage.
Types of Employment
- Autonomous Workers: Those who work independently.
- Contract Work: Specifies areas such as the trial period and the duration of the contract.
Forms of Capital
Capital is essential for establishing and maintaining business activity:
Physical Capital
Consists of material elements such as buildings, machinery, and equipment.
Human Capital
Refers to the training, qualification, and experience of employees.
Financial Capital
The money needed to establish a business and maintain its activity. Sometimes business owners do not have enough money and require financing.
Major Economic Systems
The Communist System
This system does not recognize private ownership of the means of production. The state controls all aspects of the economy, owns businesses, and decides what quantity to produce to meet social needs.
The Capitalist System (Free Market)
Capitalism, also known as the free market economic system, is dominant in today's world. This system has four main features:
- Private property.
- The search for profit.
- Regulation of the number of products made by companies and their price through the laws of supply and demand.
- The existence of free competition.