The ManicaPost
Friday Lessons With Uncle J
ECONOMIC activity is the activity of making, providing, purchasing, or selling goods or services.
Any action that involves producing, distributing, or consuming products or services is an economic activity.
Economic activities exist at all levels within a society.
Additionally, any activities involving money or the exchange of products or services are economic activities.
For instance, running a small business is a great example of economic activity.
Employees working in a factory and receiving wages, for example, are performing economic activities.
Their employers are also economically active because they pay the workers and make and sell goods.
The term contrasts with non-economic activities.
When somebody goes to a temple to pray or meditate, for example, they are performing a non-economic activity.
So is helping a friend study if you receive no money for that help.
Economic activity — two definitions
There are many ways to define the term.
Economic activity is the process by which the stock of resources or stock of capital produces a flow of output of goods and services that people utilise in partial satisfaction of their unlimited wants.
This process involves not only the production of goods and services but their distribution among the various members of the community.
Economic activity — main aim
One of the main aims of economic activity is to produce goods and services to make them available to consumers.
All activities which we perform in exchange for money or things of value are economic activities.
Put simply; economic activities are those which we undertake to earn income, money, or wealth.
Unlimited wants vs. scarcity
With these activities, we secure the greatest satisfaction of unlimited wants with scarce and limited means.
‘Unlimited wants’ is an economic term.
It refers to human’s insatiable appetite for things.
Humans never get enough because there is always something else that we want or need.
However, even though we have unlimited wants, the resources we have available to get them is limited. In other words, the things we want are scarce.
Scarcity, which has plagued us ever since we first set foot on this Earth, has two halves:
1. Limited resources.
2. Unlimited wants.
GDP
GDP is the sum of every economic activity in a country. GDP stands for Gross Domestic Product.
It is the most important economic measure of the state of a country’s economy.
With one simple figure, we can tell whether an economy has grown, shrunk, or remained the same since one year ago.
In other words, GDP tells us whether economic activity has increased, declined, or remained flat.
Economic activity — classifications
Economists say there are four basic types of economic activities:
The Primary Sector, i.e., raw materials.
The Secondary Sector, which includes industry and manufacturing.
The Tertiary Sector, i.e., services.
The Quaternary Sector, which we also call the ‘knowledge sector.’
Economic System
An economic system is a means by which societies or governments organise and distribute available resources, services, and goods across a geographic region or country.
Economic systems regulate the factors of production, including land, capital, labour, and physical resources.
An economic system encompasses many institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community.
Types of Economic Systems
There are many types of economies around the world.
Each has its own distinguishing characteristics, although they all share some basic features.
Each economy functions based on a unique set of conditions and assumptions.
Economic systems can be categorised into four main types: traditional economies, command economies, mixed economies, and market economies.
1. Traditional economic system
The traditional economic system is based on goods, services, and work, all of which follow certain established trends.
It relies a lot on people, and there is very little division of labour or specialisation.
In essence, the traditional economy is very basic and the most ancient of the four types.
Some parts of the world still function with a traditional economic system.
It is commonly found in rural settings in second and third world nations, where economic activities are predominantly farming or other traditional income-generating activities.
There are usually very few resources to share in communities with traditional economic systems.
Either few resources occur naturally in the region or access to them is restricted in some way.
Thus, the traditional system, unlike the other three, lacks the potential to generate a surplus.
Nevertheless, precisely because of its primitive nature, the traditional economic system is highly sustainable.
In addition, due to its small output, there is very little wastage compared to the other three systems.
2. Command economic system
In a command system, there is a dominant centralised authority – usually the government – that controls a significant portion of the economic structure.
Also known as a planned system, the command economic system is common in communist societies since production decisions are the preserve of the government.
If an economy enjoys access to many resources, chances are that it may lean towards a command economic structure.
In such a case, the government comes in and exercises control over the resources.
Ideally, centralised control covers valuable resources such as gold or oil.
The people regulate other less important sectors of the economy, such as agriculture.
In theory, the command system works very well as long as the central authority exercises control with the general population’s best interests in mind.
However, that rarely seems to be the case. Command economies are rigid compared to other systems.
They react slowly to change because power is centralised.
That makes them vulnerable to economic crises or emergencies, as they cannot quickly adjust to changing conditions.
3. Market economic system
Market economic systems are based on the concept of free markets.
In other words, there is very little Government interference.
The government exercises little control over resources, and it does not interfere with important segments of the economy. Instead, regulation comes from the people and the relationship between supply and demand.
The market economic system is mostly theoretical.
That is to say, a pure market system doesn’t really exist.
Why?
Well, all economic systems are subject to some kind of interference from a central authority.
For instance, most governments enact laws that regulate fair trade and monopolies.
From a theoretical point of view, a market economy facilitates substantial growth.
Arguably, growth is highest under a market economic system.
A market economy’s greatest downside is that it allows private entities to amass a lot of economic power, particularly those who own resources of great value.
The distribution of resources is not equitable because those who succeed economically control most of them.
4. Mixed system
Mixed systems combine the characteristics of the market and command economic systems.
For this reason, mixed systems are also known as dual systems.
Sometimes the term is used to describe a market system under strict regulatory control.
Many countries in the developed western hemisphere follow a mixed system.
Most industries are private, while the rest, composed primarily of public services, are under the control of the government.
Mixed systems are the norm globally.
Supposedly, a mixed system combines the best features of market and command systems.
However, practically speaking, mixed economies face the challenge of finding the right balance between free markets and government control.
Governments tend to exert much more control than is necessary.
Final Word
Economic systems are grouped into traditional, command, market, and mixed systems.
Traditional systems focus on the basics of goods, services, and work, and they are influenced by traditions and beliefs.
A centralised authority influences command systems, while a market system is under the control of forces of demand and supply.
Lastly, mixed economies are a combination of command and market systems.
