Production, Economic Factors, and Agents

Goods and Services

Who Produces Goods and Services?

Individuals with specific skills tend to be more productive. Specialization is key to efficient production and acquisition of goods and services.

Why Specialization?

The division of labor and exchange promotes productivity.

Factors of Production

• Earth
• Labor
• Capital

These factors combine to generate natural resources (raw materials), which are then transformed into finished products. The ultimate goal of production is profit.

Capital

Capital encompasses machinery, manufactured goods, large-scale plants, and inventories of finished and unfinished materials (excluding human resources).

Natural Capital

Natural resources are considered natural capital when they become a source of profit.

Human Capital

Human capital becomes more productive through experience and training.

Main Economic Agents

• Businesses
• Families
• Public Sector
• External Sector

Families act as consumers.

Businesses combine factors of production to create goods and services for the market. Both private and public companies exist, reflecting a mixed economic system rather than pure capitalism.

Business Classifications

• Microenterprises: 0-9 employees
• Small: 10-49 employees
• Medium: 50-249 employees
• Large: More than 250 employees (often multinationals)

While microenterprises and large multinationals can be seen as opposing forces due to their differing profit scales and societal impact, small businesses often play a vital role in economic and social well-being.

Cooperatives, while not strictly capitalist entities, coexist within the capitalist system.

Public Sector

The public sector's size varies across countries, funded primarily through taxes. It provides public goods, which are non-excludable (available to all) and non-rivalrous (one person's consumption doesn't diminish another's).

The state intervenes in the economy through economic policy to achieve specific objectives.

Economic Policy

• Monetary Policy
• Fiscal Policy
• Budgetary Policy
• Regulatory/Developmental Policy

Monetary Policy

Central banks implement monetary policy to control the money supply and maintain price stability.

Fiscal Policy

Government decisions regarding public spending and taxation constitute fiscal policy.

Budgetary Policy

Budgetary policy outlines government revenue and expenditure plans.

Regulatory/Developmental Policy

This policy area addresses employment regulations, including wage determination, retirement provisions, and other related aspects.