Topic 3: Economic activities

1. Introduction: What is Economics?

Economics is the science that studies how societies use limited resources (raw materials, labor, capital) to produce goods and services and distribute them among the population to satisfy their unlimited needs.

An economic activity is any process aimed at producing, exchanging, or consuming these goods and services.

2. Economic agents

They are the main actors in economic activity. The three main agents are:

1. Households:

   • Main function: To consume goods and services to satisfy their needs.

   • They offer their labor (workforce) and capital (savings) to companies in exchange for a salary or interest.

2. Businesses:

   • Main function: To produce the goods and services demanded by households.

   • To do this, they hire labor and use capital (machinery, technology) to transform raw materials into finished products. Their goal is to make a profit.

3. The State (Public Sector):

   • Main function: To regulate economic activity and redistribute wealth.

   • It collects taxes (revenue) to provide public services (education, healthcare, infrastructure) to society and ensure the common welfare.

3. Factors of production

These are the resources needed to produce goods and services. There are three:

1. Natural Resources (Land): Everything provided by nature that is used in production: arable land, water, minerals, energy, forests...

2. Labor (Workforce): The physical and intellectual effort of people applied to production. It can be:

   • Unskilled: Requires no special training.

   • Skilled: Requires specific training (degrees, experience).

3. Capital: This is not just money, but all durable goods used to produce other goods. It includes:

   • Physical capital: Machinery, tools, factories, computers.

   • Financial capital: Money needed to invest and start the activity.

4. Economic sectors

Economic activities are grouped into three major sectors according to their nature:

a) Primary Sector:

• Definition: Comprises activities that obtain products directly from nature, without transformation.

• Activities:

  • Agriculture: Cultivation of land.

  • Livestock farming: Rearing of animals.

  • Fishing: Capture and farming of aquatic species.

  • Forestry: Obtaining wood and other forest products.

  • Mining: Extraction of minerals and rocks from the subsoil.

• Characteristics: It is the most important sector in less developed countries. In developed countries, it employs a very small percentage of the population.

b) Secondary Sector:

• Definition: Comprises activities that transform raw materials from the primary sector into manufactured or semi-manufactured products.

• Activities:

  • Industry: This is the main one. It transforms raw materials into finished products (automobiles, textiles, chemicals, technology).

  • Construction: Building of houses and infrastructure (roads, bridges).

  • Energy production: Power plants, oil refineries.

• Characteristics: It was the engine of the Industrial Revolution. It is key to a country's economic development.

c) Tertiary Sector (Services):

• Definition: Comprises activities that do not produce material goods, but rather offer services to meet the needs of the population and other businesses.

• Activities: This is the most diverse sector.

  • Trade: Buying and selling products.

  • Transport: Movement of people and goods.

  • Tourism: Leisure and recreational travel.

  • Healthcare, Education, Public Administration.

  • Financial services: Banking, insurance.

  • Digital services: Telecommunications, internet.

• Characteristics: It is the most important sector in developed countries, where it employs more than 70% of the population. It is the clearest indicator of a high level of development.

5. The Value Chain and the Economic Circuit

• Value Chain: This is the complete process a product follows, from the extraction of the raw material (primary sector), its transformation (secondary sector), its transport and sale (tertiary sector), to its final consumption.

• Economic Circuit: This is a model that represents the continuous flow of wealth (money), goods and services, and factors of production between the different economic agents (households, businesses, the State). It shows how money circulates constantly in the economy.

6. Evolution of the labor force by sectors

The distribution of workers across the different economic sectors changes radically with a country's development.

1. Pre-industrial Societies: The majority of the population works in the primary sector (>70%).

2. Industrial Societies: The population migrates from the countryside to the city to work in factories. The secondary sector becomes the main employer.

3. Post-industrial or Developed Societies: Mechanization reduces employment in the primary and secondary sectors. The tertiary sector absorbs the vast majority of the labor force (often more than 75%). This process is called tertiarization of the economy.

Final Summary: Economic activities, grouped into the primary, secondary, and tertiary sectors, are the basis of the organization of any society. Economic agents (households, businesses, and the State) interact using the factors of production (natural resources, labor, and capital) to generate wealth. The evolution of the weight of each sector in the economy is the best thermometer to measure a country's level of development, with tertiarization being a defining characteristic of the most advanced economies.

Exercises – Topic 3: Economic Activities

Exercise 1. Multiple choice

Elige la respuesta correcta.

a) Which of the following is not an economic agent?
• Households
• Businesses
• The State
• Energy production

b) Which of the following belongs to physical capital?
• Money in a bank account
• A tractor
• Workers' training
• Natural gas reserves

c) The primary sector includes:
• Automobile manufacturing
• Banking and insurance
• Agriculture and livestock farming
• Software development

d) The tertiary sector is dominant in:
• Pre-industrial societies
• Industrial societies
• Post-industrial or developed societies
• Rural and isolated regions

Exercise 2. Classify

Clasifica cada elemento como Primary sector, Secondary sector, o Tertiary sector.

• Construction of a bridge
• Fishing in the Atlantic Ocean
• Selling clothes in a shopping mall
• Production of electricity in a power plant
• Mining of iron
• Programming a mobile app

Exercise 3. True or False – Explain

Marca como True (T) o False (F) y explica brevemente.

1. Capital refers only to money and savings.
   
   

2. The tertiary sector does not produce material goods.
   
   

3. Skilled labor requires specific training or education.
   
   

4. In less developed countries, the primary sector employs a very small percentage of the population.
   
   

5. The value chain shows the entire process a product follows from extraction to consumption.
   
   

Exercise 4. Short Answer

Responde con frases breves y claras.

a) What is the main role of households in the economic system?
b) Why is the secondary sector important for a country’s development?
c) Define natural resources and give two examples.
d) What is the economic circuit?

Exercise 5. Applied Task – Identify the Sector

Lee cada actividad y señala el sector al que pertenece y por qué.

a) A factory that transforms wheat into flour.
b) A company that designs and sells online courses.
c) A farm that produces milk and cheese.
d) An architect designing a new residential building.
e) A renewable energy company installing solar panels.

Exercise 6. Evolution of the Labor Force

Contesta:

a) Why does the tertiary sector become dominant in post-industrial societies?
b) Explain why the primary sector decreases in relative employment as countries develop.
c) What is meant by "tertiarization of the economy"?

Exercise 7. Matching

Relaciona cada concepto con su definición.

1. Households
   
   

2. Capital
   
   

3. Industry
   
   

4. Primary sector
   
   

5. Tertiary sector
   
   

6. Value chain
   
   

A. Activities that extract products directly from nature
B. Sequence of steps from raw material to final consumption
C. Transformation of raw materials into finished products
D. Goods and services that meet the needs of the population
E. People who consume goods and offer labor
F. Machinery, tools, and financial resources used for production

Exam Questions – Topic 3: Economic Activities

Multiple Choice

1. Which of the following is part of the secondary sector?
• Livestock farming
• Textile manufacturing
• Tourism
• Banking

2. Economic agents include:
• Land, labor, capital
• Households, businesses, the State
• Primary, secondary, tertiary sectors
• Income, consumption, investment

3. The main function of the State in the economy is to:
• Produce goods for export
• Maximize profits
• Regulate and redistribute wealth
• Offer labor to companies

True/False (Correct if false)

1. The primary sector transforms raw materials into finished products.
   
   

2. Financial capital refers to machinery and tools.
   
   

3. The tertiary sector includes trade, tourism, and public administration.
   
   

Short Answer

1. Define labor as a factor of production.
   
   

2. Explain one difference between skilled and unskilled labor.
   
   

3. Why is capital essential for production?
   
   

Applied / Extended

1. Describe the relationship between the primary, secondary, and tertiary sectors within the value chain.
   
   

2. Imagine a country where most workers are farmers, and only small urban industries exist. In which stage of economic development is this country? Justify your answer.
   
   

3. Discuss one advantage and one disadvantage of having an economy highly dependent on the tertiary sector.
   
   

Exercise: Calculating value and sectoral contribution

A country produces in one year:

• Primary sector: 40 billion euros
• Secondary sector: 120 billion euros
• Tertiary sector: 240 billion euros

Questions:

a) What is the total GDP of the country?
b) What percentage does each sector represent in the total economy?
c) According to these values, what type of economy does this country have (pre-industrial, industrial, post-industrial)? Explain.

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