UNIT 7: ECONOMY.
1. WHAT IS THE ECONOMY?.
The economy is all human activities related to the production, distribution and consumption of products and services. In other words, it is how we make things, how we deliver them to where they are needed and how we buy and sell them.
The economy consists of producers, distributors and consumers. Producers make products, distributors deliver them and consumers use them.
2. THE ECONOMY: HOW THE ECONOMY WORKS.
People produce economic goods to satisfy their needs and wants. Economic goods include:
- PRODUCTS or GOODS: material objects such as food, books, computers, clothes, etc.
- SERVICES: work that is done by a person, but which does not produce a product, such as transportation, education, health care, lawyers,
Economic activities produce economic goods using different resources called FACTORS OF PRODUCTION. These can be:
- Natural resources: thing that come from the natural environment (minerals, plants, water, animals, etc).
- Human Resources: workers and their labour and in return, people are paid wages or salary.
- Capital resources: includes the things that you own and the things that you know. Capital is provided by the investors. There are different types of capital:
- Financial capital: money.
- Physical capital: buildings, vehicles and machinery.
- Human capital: the knowledge and skills of employees. Human capital is the result of education and training.
- Technology and know-how: inventions.
3. AN ECONOMIC SYSTEM.
An economic system is the way in which a society organises its economy. There are different types of economic systems but the two most important are:
- PLANNED OR COMMUNIST ECONOMY: the State controls the majority of the factors of production and decides how the economy must work. The government control all decisions taken about economy: provides goods and services, sets wages and prices and decides how to use resources.
- CAPITALIST SYSTEM OR MARKET ECONOMY: businesses and consumers control the economy with limited involvement by the State. People and companies produce goods and services freely. The factors of production belong to individuals and businesses, not the State. The government only use the economic policy to influence in the economy. In the market, companies and people exchange goods and services and set prices. Supply and demand determine the prices of goods and services.
4. MARKET ECONOMY: SUPPLY AND DEMAND.
Definitions: Supply is the amount available of a product and demand is the number of people who want to buy the product.
- If the supply of a product is high, the price goes down. For example, if a shop has too many pants of the same type for sale, the price would be lower to encourage people to buy the pants.
- If the supply of a product is low, the price goes up. For example, if many people want to buy a new mobile phone and there are only few available, the company can charge higher prices.
5. ECONOMIC AGENTS.
Everyone who produces, consumes or distributes products participates in the economy. We can divide the economic agents in three types: businesses, families and government.
- Companies: produce goods and services to obtain a profit. Businesses offert their products and services in the market and they obtain incomes from the selling. If incomes are higher than the expenses, the business make a profit.
- Families: buy goods and services spending money. Workers receive for their work wages which they use to buy goods and services.
- State: in a Social State, intervenes in the economy offering different services such as health care or education and collect taxes that later are spent buying products and services. It also pay benefits to pensioners and to people who are unemployed.
6. LABOUR MARKET: WORKERS.
Workers are the human resources of a company. Workers are subject to market laws, demand and supply: the labour market. For example, if lots of people can do a particular job, there is lots of supply and wages are low. If only few people can do a job, there is less supply, so the wages are higher.
The working age population includes normally between 16 and 67. They can be divided into economically active and inactive people. Inactive people don't want paid work at the moment (housewives/househusbands, students, disabled people, etc).
Active people can be divided in three groups:
- Employees: are paid a wage to work for a business or for the government.
- Self-employed: they work for themselves, selling goods or services.
- Unemployed people: they want to get a paid work but don't have a job at the moment.
7. BUSINESSES.
Businesses produce goods or services. All businesses have in common: owners who have invested a capital and they want to make a profit.
The European Union divides bussinesses in four categories based on their size:
- Micro businesses: have between 1 to 9 employees.
- Small businesses: have between 10 and 49 employees.
- Medium-sized businesses: have between 50 and 249 employees.
- Large businesses: have more than 250 employees.
Businesses can be divided according to their ownership: public or private sector.
- Public: providing services such as education, health care, police, defense, etc.
- Private: companies run by private individuals or groups with the objective of making a profit.
8. WORLD ECONOMY: GLOBALISATION.
Nowadays, alll countries economies are interconnected and form part of a world free market system. This process of global economical integration is called globalisation. This new economic system has led to an increase in international trade. These are the features of this process:
- Technology: allows companies all over the world to be in contact with each other.
- Transportation: bigger ships, better roads and railways and cheaper flights have all made it easier to move goods and people around the world.
- Multinationals: companies business is global, they produce and sell everywhere.
- Relocation of production: companies have moved their production centers to other countries, especially east Asia and China, looking for low wages.
- Free Trade Zones: countries that are part of a free trade zone remove tariffs on products they buy from other member countries.
- International Organisations: World Trade Organisation (WTO) and United Nations promote free trade between members.
9. ECONOMY SECTORS.
The economic activities can be divided into three sectors:
- Primary: is the sector of the economy making direct use of natural resources (raw materials) This include agriculture, livestock, forestry, fishing and mining.
- Secondary: involves the transformation of raw materials and intermediate materials into goods. This sector include industry and construction.
- Tertiary: involves providing services to bussinesses and consumers.
In late 20th century, scholars have included another sector, Quaternary. This sector include advance tertiary sectors such as computing, ICT (information and communication technology), consultancy, scientific research, etc.
ACTIVITIES.
1. Match the concepts with the right definition: Price, consumer, supply, globalisation, demand, profit, budget, incomes, investment, tax, unemployment, unemployment benefit, trade union, relocation, multinational, tariff, trade.
Goods and services that are available for saleAmount of money a person or institution has to cover their expenses
Cost of a product or service
Money a person or company receives from economic activities such as work
Situation of people of working age who do not have a job but would like to have one.
Person who uses goods or services
Money that is used by a person or business with the expectation of later receiving a profit.
Goods and services that consumers want to buy
Money paid to the government by people and companies which is used to finance public expenses
Difference between what it costs to make something or provide a service and what is sold for
Company or organisation that operates in several countries.
Organisation that defends workers's rights
Activities related to buying and selling goods and services.
Money that unemployed people receive from the government
A process of integration that affects economic, political and cultural systems accross geographical boundaries
Tax on a product imported from another country.