Understanding Economic Concepts: Benefits, Costs, and Systems

Understanding Key Economic Concepts

Benefit: The result of the difference between expenditures and revenues from economic activity. If the costs outweigh the revenue, losses will occur.

Well: Every object that meets a need and has value.

Service: A service designed to meet a personal or social need, but that does not consist of the production of an object.

Cost of Living: The amount of the minimum expenditure needed to obtain basic goods and services. To calculate the cost of living (CDLV), add the value of a set of products. The result defines the Consumer Price Index (CPI) used to see how the cost of living changes, whether up or down.

Inflation: Rising commodity prices.

CPI: Serves primarily to see how the cost of living changes, whether up or down.

Investment: The amount of money spent to start a business or maintain and improve it in order to make a profit.

Speculation: When a person or group seeks a quick profit from a business or financial transaction based solely on the price change of goods.

Market: Refers to all consumers who demand goods and services and all producers who offer them.

Production: Goods and services generated by economic activity.

Productivity: The relationship between what is produced and the means employed.

Low Productivity: When using many means, but the production obtained is small.

High Productivity: If there is a high output using few resources.

Gross Domestic Product (GDP): The total value of goods and services produced in a territory for a year. It reflects the wealth or income generated in that territory.

GDP per Capita: GDP divided by the number of inhabitants in the territory.

Economic Systems

The Communist System: Does not recognize private ownership of the means of production. The state controls all aspects of the economy: business owners decide what to produce and in what quantities to meet the social needs they deem necessary, set the prices of products, and choose among those who will share the benefits.

The Capitalist System: Characterized by private ownership of the means of production, including land, machinery, technology, and businesses.

The pursuit of profit serves as the engine of economic activity, with the regulation of products produced and their prices determined by the law of supply and demand.

• Supply + demand leads to competition between products, causing prices to fall.
• Increased demand leads to a shortage of goods, causing prices to rise.
• Lowering prices increases demand.

Family Economics

• Consume
• Taxes
• Labor

Business Economics

• Produce (Products/Services)
• Need family and work (Salary)
• Companies buy other goods and services
• Pay taxes for legal protection
• Public/Private companies have different sizes
• Individual enterprise (SLSA)

State Role in the Economy

• Normalize the economy (they make the rules)
• Incentivize private sector through grants
• Create companies in strategic sectors (defense, education, and areas in crisis)
• Provide public services (health, safety, etc.)
• Generate many jobs
• Collect taxes