Understanding Economic Activity and Key Concepts

Economic Activity: Production, Distribution, and Consumption

Economic activity is the process by which we obtain products and services that cover human needs. It has three phases: production, distribution, and consumption. The economy is the science that studies the goods and services to be produced, the amount, and investment.

Economic Sectors

• Primary sector: Designed to obtain food and raw materials.
• Secondary sector: Transforms raw materials into processed products.
• Tertiary sector: Services.
• Quaternary sector: Includes research, management, and information processing.

Economic Concepts

• Profit: The difference between expenses and income.
• Good: An object that satisfies a need and has a value.
• Service: A provision intended to satisfy a need.
• Cost of living: The sum of minimum expenses essential for basic goods and services.
• Inflation: Rising prices.
• Investment: The amount of money that goes to a business to obtain a profit.
• Speculation: When a person gets a profit based on the rapid variation of the price.
• Market: Where consumers demand and producers offer goods and services.
• Production: Goods and services generated for economic activity.
• Productivity: The relationship between what is produced and the resources used.
• GDP (Gross Domestic Product): The total value of goods and services produced in a territory in a year.
• GDP per capita: The average production of wealth per person.

Who is Involved in Economic Activity?

• The family: Participates in the production and consumption of goods and services.
• Companies: Produce goods and services for a profit. To develop their economic activity, they require the work of families in exchange for a wage.

Types of Companies

• According to ownership:
  • Public: If they are state property.
  • Private: If they belong to private persons or entities.
• Depending on the size:
  • Micro-enterprise: Less than 10 workers.
  • Small enterprise: Less than 50 workers.
  • Medium enterprise: Up to 250 workers.
  • Large enterprise: More than 250 workers.

Some companies are owned by a single individual, and others have several owners, which is called a society.

Role of the State

The state prepares standards, encourages private sector activity, creates businesses in strategic sectors, and builds public service sites. To do that, the state collects taxes.

Taxes

• Taxes: A payment made to a public body.
• Direct taxes: Taxes that directly affect income (e.g., personal income tax).
• Indirect taxes: Taxes paid to acquire a good or service (e.g., VAT - Value Added Tax).