ECONOMIC ACTIVITY

THE ECONOMYThe economy is responsible for the

administration or use of resources which satisfy the needs and wants of individuals and groups.

Economic goods are produced by people to satisfy their needs and wants. Two types:◦ Products: Material objects.◦ Services: Work done for someone.Economic goods are limited and they have a price.

Economic activities are all the processes used to obtain the products and services that people need.

Each economic activity has three phases:

PRODUCTION

DISTRIBUTION

CONSUMPTION

◦Production: Is the process of creating products and services.

◦Distribution: Is the process of moving products and services from the place of production to the consumer.

◦Consumption: Is the process in which people buy products or use services to satisfy their wants and needs.

Economic activities produce economic goods using different resources, called factors of production:◦ Natural resources (water, plants,…)◦ Human resources (people and their labour)◦ Capital resources (money, equipment…)

Economic activities can be grouped into three sectors:◦ Primary sector◦ Secondary sector ◦ Tertiary sector

Types of economic systemsEconomic system is the way in which a society

organises its economy (production + distribution + consumption). Types:◦ Subsistence economy: Families produce enough to

meet their basic needs. In less-developed countries.

◦ Planned or socialist economy: The state do not recognize private ownership. The state owns all the companies.

◦ Interventionist or centralised economy: The state takes actions that affect the economy.

◦ Capitalist system or market economy: Prices are only obtained with the law of supply and demand.

The market economy: supply and demand

This is the economic system most often found in the world today.

People and companies produce, buy and sell goods and services freely.

The factors of production belong to individuals and busisesses, not the state.

The market is the method used to exchange goods and services and set prices.

Supply and demand determine the prices:◦ When the supply is greater than the demand, there

is competition between products and prices decrease.

◦ When prices decrease, the demand increases.◦ When the demand is greater than the supply,

products become scarce and prices increase.