Fundamentals of Economics: Systems, Sectors, and Globalization
Economic Activity and Core Concepts
Economic activity is any process by which we obtain the products and services that meet human needs. Economic activities cover three essential stages:
- Production
- Distribution
- Consumption
Economics is the science that studies these issues.
The Three Economic Sectors
Primary Sector
Includes activities focused on obtaining food and raw materials directly from the environment, such as agriculture.Secondary Sector
Covers economic activities that transform raw materials extracted from nature into manufactured products, primarily through industry.Tertiary Sector
Comprises a wide range of activities that, unlike the primary and secondary sectors, do not produce a tangible good but provide a service to society (e.g., transportation).Taxation and Market Systems
Types of Taxes
Taxes are generally categorized as:
- Direct Taxes: Affect wealth (income, assets, profits) and are paid directly by workers and employers (e.g., Personal Income Tax - PIT).
- Indirect Taxes: Affect the use or transmission of wealth (consumption). These are paid by consumers (e.g., taxes on consumption, often exemplified by items like tobacco/snuff).
The Capitalist System
Capitalism is known as the free-market economic system. Its key characteristics include:
- Private Property of Means of Production: This includes land, machinery, technology, and businesses.
- The Pursuit of Profit: This serves as the primary engine of economic activity.
Market Regulation: Supply, Demand, and Competition
The market regulates the number of products made by companies and their price through the Law of Supply and Demand. According to this law:
- When the supply of an item is low relative to consumer demand, production and price tend to increase.
- When there is a surplus of products, production and price tend to decrease to meet consumer demands.
The existence of competition means that any individual or company can perform the desired economic activity, provided they comply with current legislation.
However, markets can also exhibit imperfect competition:
- A Monopoly occurs when a single company controls the production and sale of a product.
- An Oligopoly occurs when control of a product is in the hands of a few companies.
The Informal Economy
The Informal Economy (or shadow economy) encompasses officially undeclared economic activities that develop outside the legal framework. Many governments often turn a blind eye, and in practice, there are often no associations defending the rights of workers without formal contracts.
Economic Globalization
Today, relations between different parts of the world tend to be more intense than ever, and companies increasingly operate in a global space. This process is known as economic globalization, characterized by four main features:
- International trade has grown significantly.
- A new organization of production has emerged (e.g., global supply chains).
- International financial flows are becoming more intense and are closely tied to modern information media.
- Trade agreements between countries are becoming more numerous.