Economic activities influence our daily life. In recent years, society has evolved to a global scale, which has led to the loss of part of the local market and crafts. On the other hand communication and interdependence among the countries of the world has grown. Find out how economic sectors influence the characteristics of each society below.
Society can be analysed from many points of view. From an economic and employment point of view, we can distinguish between the active population and inactive population. It all depends on whether its members work or not, and why.
1.1The active population
The active population is made up of people of working age. They may be working or searching for work, which is why we distinguish between the employed population and unemployed population .
The active population EMPLOYED POPULATION UNEMPLOYED POPULATION People who work
(for themselves or for others).
1.2The non-active population
The inactive population is made up of people who do not work and who are not looking for work.
The non-active population People who are not working and who are not looking for a job:
– Those under 16 years of age.
– Students who have never worked.
– Retired people.
– People who look after the home.
– Dependent people.
Let’s analyse an everyday scene. For example: at home with a youngster called Pedro, where only his mother has a job. She is a cook at a care home for the elderly, where she has been working for more than 10 years. His father, on the other hand, has been unemployed for two years. As well as searching for work every day, he looks after the house and takes Pedro and his sister Julia to school.
If we think about it, we will see that Pedro and Julia are part of the active population, although their mother belongs to the employed population; while the father belongs to the unemployed population. In the meantime, the elderly people at the care home where the mother works are members of the inactive population, because they are senior citizens (retired or dependent).
Economic activities can be divided into three groups: primary, secondary and tertiary.
Economic sectors PRIMARY SECTOR SECONDARY SECTOR TERTIARY SECTOR Extraction and exploitation of natural resources. Transformation of raw materials into manufactured products. Services offered to people and companies. Agriculture, livestock farming, fishing, aquaculture and forestry. Mining, industry, energy production, construction and crafts. Commerce, transport, tourism, finance and communication.
2.1The primary sector
The primary sector includes activities that are directly linked to the production of raw materials and exploitation of natural resources.
Agriculture is the set of practices relating to cultivating the countryside. Most farmland is used to grow food products, although there are others, such as cotton and linen, which are used by industry.
Livestock farmersbreed animals, which are used to obtain raw materials such as meat, milk and wool.
Fishing is the sector of the economy specialising in catching aquatic animals from oceans, seas, rivers and lakes.
The activities of the primary sector are very important to the economy and for society, because without them we would not have food or raw materials for industry. However, the population employed by the sector is a very small percentage of the total, particularly in developed countries.
2.2The secondary sector
The secondary sector includes activities that are directly linked to the transformation of raw materials and natural resources into manufactured products.
Mining makes use of the minerals existing in the Earth’s crust. Mines can be underground or open cast.
The energy sector produces the energy needed by homes, companies, public buildings, etc. There are two types of energy: renewable and non-renewable.
Industry transforms raw materials into manufactured products (ready for use or consumption) and semi manufactured products (used by other industries).
Construction means erecting all types of buildings and infrastructures (road networks, bridges, airports, etc,).
Craft means manufacturing products by hand or with the help of tools. It is a minority sector in industrialised countries, but it is very prestigious in certain areas, such as the manufacturing of musical instruments.
2.3The tertiary sector
The tertiary sector consists of all the activities that offer services to consumers and users.
Commerce is based on the exchange of all types of products. It can be domestic (within the same country) or foreign (with other countries).
Transport enables people and goods to travel. This can be by land (by road, motorway, train, etc.) air or sea.
Tourism involves leisure and free time. There are different types of tourism according to the destination and the tourist’s interests. sun and beach, rural, cultural, family, business, etc.
Tourism is an important source of employment. When the summer season arrives, particularly in coastal areas, the number of people employed in the hotel industry, businesses, water parks and in other activities related to leisure and free time increases.
Communications are essential. They offer communication tools, information and entertainment.
Social services cover the population’s basic needs (education, healthcare, justice, etc.) and depend greatly on civil services.
Let’s analyse an everyday scene. For example: a youngster, Julia, has gone to the supermarket to buy a packet of biscuits. When she reads the ingredients she can see that they have used flour, eggs, milk, cocoa, sugar and other products. After this, she goes to the cash desk and pays.
If we think about it, we can see that there activities from different economic sectors in this scene. The milk, eggs and cereals used to make the biscuits come from the primary sector, the industry has been involved by manufacturing the biscuits and for making the package. Lastly, the tertiary sector is present in the distribution of the biscuits and in the shop itself.
The public sector is essential to the correct functioning of our society. The State is responsible for guaranteeing all citizens’ rights to basic services:
- Education and culture.
- Justice and safety
- Civil services and government.
The purpose of the public sector is to serve society, not to earn money.
In spite of its strategic importance and the large amount of land used (agriculture occupies 40% of Spain), the primary sector employs less than 10% of Spain’s active population.
Secondary sector activities play an important part in the country’s economy, but this has been falling over the years. The most important activity is industry, which is heterogeneous and distributed unevenly in Spain. The main industrial regions are Catalonia, the Basque Country, the Valencian Community and the Community of Madrid.
In Spain, as in the rest of the countries in the developed world, the majority of the population is employed in the tertiary sector, which is the only sector which is continuing to grow. Commerce, tourism and transport are the main activities of this sector in our country.
In the same way that citizens have rights, they also have obligations: respect for people, laws, civic order, coexistence, etc.
Respect is based on recognition of diversity. In Spain we find great social diversity, which is determined by:
- The place of residence.
- The economic level.
- The country of origin.
- Cultural heritage.
- Level of education.
- Socio-demographic profile (age and sex).
Multiculturalism in our society is framed in a global world, in which exchanges have become international and frontiers and distances have become shorter.
Globalisation is a planetary phenomenon which could not have occurred without new communication and information technologies, and the transport revolution.
Globalisation has been the cause and consequence of the process of expansion of multinational companies, the growth of economic trade, of migratory movements and of tourist flows on a global scale.
Economics is present in many aspects of our everyday lives. Normally, we tend to associate economics with a specific image: money. However, this is only one of its elements.
The word economics comes from the Greek word oikosnomos (oikos, home; nomos, administrator), which means the “art of administrating the home”. Today we define economics as the social science that studies how the available resources can be used to satisfy the needs of society. To do this, economists study the production, exchange and consumption of goods of a society.
Economics focuses on the analysis of:
- What is produced.
- How it is produced.
- Who it is produced for.
Throughout history there have been different forms of production that have conditioned the characteristics of the economy at each moment. For example, the economy did not function in the same way in Ancient Egypt as in medieval France or 19th century England. Economics, as with science and technology, has evolved over the centuries.
The forms of production or economic systems are the different forms that have existed throughout history to carry out the activities of production and distribution. At the same time, these production models have determined the political organisation of society.
2.1The primitive economy
Prehistoric man used a primitive economy. During the Palaeolithic period (2.5 million years-10,000 B.C., the hunter-gather societies lived from the hunting of wild animals and fishing, as well as the collection of wild fruits. Each group manufactured its own tools and clothing.
Then came the Neolithic period (10,000-5,000 B.C.) and the small communities of hunter-gathers changed their way life. The invention of agriculture and animal husbandry led them to become sedentary, in other words, to settle in one place. Gradually, each one became specialised in a specific task: some worked the land, others cared for the livestock. Agriculture and animal husbandry enabled them to have sufficient food for everyone, therefore enabling others to dedicate their time to manufacturing tools, fabric, pottery, etc. This is how the crafts were born, and with this, trade soon followed.
Money has not always existed. Before money was invented, our ancestors bartered, in other words, they exchanged products of a similar value.
2.2The slave production model
With the passing of the centuries, the small towns grew and many of them became the first cities. In the cities of Mesopotamia and Ancient Egypt, agriculture developed in a spectacular manner thanks to the construction of channels, dams and other infrastructures that allowed water to be used to irrigate the crops. In these societies there were slaves which were used in the production activities, even though the economy was not based on the slave production model. It was the Greeks, from the 7th century B.C., who defined this system which a few centuries later became the production model of the Romans.
Slaves were considered as property, the same as working animals and tools. They had no rights and the owners only fed them and gave them shelter for them to conserve the necessary strength to work.
2.3The feudal production model
In the Middle Ages, feudalism developed in Europe between the 10th and 13th century. This was a production model that was also a system of political and social organisation, surviving in some places until well into the 19th century. In the feudal world, the largest part of the population, in other words, those that formed the non-privileged class, were bound in vassalage to their lord . The serfs worked the lands of their lords and he paid them a part of the production and they would serve in his armies in times of war. The lord was obliged to give them protection and guarantee them land to live and work on.
The feudal society was divided into two large groups or classes: the privileged class, formed by the nobility and the clergy, and the non-privileged class, formed by the rest of the population.
The power of the feudal lords was based on the ownership of the land granted by the king in exchange for military assistance. However, with the rebirth of the urban world in the 13th century came the appearance of a new group: the bourgeoisie, made up of merchants, traders, liberal professionals, etc. Gradually, the nobility began to lose economic power to the bourgeoisie.
The development of trade in the 13th century favoured the rebirth of the urban world. Cities grew and a new group, the bourgeoisie, became the main economic power. Together with the markets and fairs, the resurgence of the old trade routes by air and sea, the development of payment instruments and the creation of banks, these all gave a new impulse to the economy.
The European markets imported products from far off lands, such as Asian spices and products from colonial America. The so-called colonial trade between the 15th and 18th century allowed the haute bourgeoisie to accumulate the necessary capital (money) that made the industrial revolution at the end of the 18th century possible.
Capitalism or the market economy is an economic system based on three fundamental elements to bear in mind:
- The private ownership of the means of production.
- The existence of a market (of goods, of capital, of labour).
- The search for the highest profit.
The development of capitalism is linked to the industrial revolution. This began in the United Kingdom with the development of the steam engine which led to the appearance of the first factories between the end of the 18th century and the beginning of the 19th. Industrialisation began a new form of capitalism. Thus, if previously it could be said that commercial capitalism obtained its profits from the trading of goods, as of that moment one could speak of an industrial capitalism that obtained it profits from production.
Capitalism also represented important changes at a social level. From a society based on the estates of the realm, such as that of the middle ages, divided into the privileged (nobility and clergy) and non-privileged (the rest of society), it became a class society, based on wealth. In this new industrial society there are two large classes: the owners, the owners of the land and the means of production, and the working class, who sell their labour power in exchange for a wage.
The market is not only the place where we go to buy the fish for our dinner. If we are talking about economics, we must think of the market as the instrument that buyers and sellers use to establish the price and quantity of any product or service they want to exchange.
In any market, there are three basic elements: the buyer, the seller and the prices.
In order to set the prices it is necessary to take into account the two key factors:
- Supply: the amount of goods and services that reach the market.
- Demand: the amount of goods and services that the consumers are prepared to buy.
Another important element in the functioning of the capitalist system is free competition. This meant that anyone can offer goods or services even though someone else offers something similar, as it is the consumer who decides upon one or the other. This causes the offerors to compete among themselves, obliging them to offer something different to the products of their competitors (price, quality, design).
For example, think of two brands of lemon flavoured soft drink. Both competitors will have to work to get their buyers to prefer their soft drink over that of the rival brand. They can do this in different ways: improve the flavour of the product, offer more quantity of the soft drink in the cans, sell the can cheaper than the competition or invest in advertising.
Advertising is something that is very old. Even in Ancient Rome they made drawings to advertise a specific product and at the end of the 16th century brands or drawings began to be used to identify the products of a specific manufacturer. Nowadays, advertising has become an indispensable tool for informing, but most importantly, for convincing people to buy a specific product. As you will have seen, advertising is everywhere: hoardings, newspapers, magazines, radio, television and the internet.
It is important to bear in mind that there is no pure capitalism. In the majority of countries there is what we know as a mixed economy, in other words, a market economy regulated by the State in which basic rules for the functioning of the economy are established.
Money is the means of payment for services, goods and products. Money, therefore, has a very important role in our everyday lives and it would be difficult to imagine how the economy would work without it. Normally we associate the word money with notes and coins, but in economic terms, money is that which is accepted as a form of payment for products, goods or services.
Money has several functions:
- Counting unit, as it allow the value of items to be counted.
- Means of exchange, as it permits the trade of goods and services.
- Means of payment, as its value is accepted by the buyer and the seller.
- Saving unit, as it can be reserved for when it is considered necessary.
Banks are public or private companies that accept the deposits of their customers. In other words, people take their money to a bank or savings bank instead of keeping it in a money box or a safe. However, the main function of these entities is not to look after their customer’s’ money but to offer finance to individuals and companies in exchange for the payment of interest. This financing is performed through the granting of loans.
In addition to the granting of loans, the main activities of the banks and savings banks are deposits or the opening of accounts, the custody of private and business accounts, financial and stock transactions and treasury.
In the case of mortgages, the payment guarantee is a property. This means that when we ask the bank for money in order to buy a house, this will be the guarantee if we do not return the loan. This explains why during times of crisis many people lose their home because they have stopped paying the bank the money they owe.
The bank obtains a profit by operating with our money. The business of these bodies is based on providing finance to individuals, companies and even the State in exchange for interest and commissions. When the banking institutions grant finance to the State, they do so through the purchase of public debt. Ultimately, banks are dedicated to offering money in exchange for money.
When we talk about the bank, we refer to the group of economic and financial institutions (central banks, banks, savings banks, etc.). This bank forms part of the financial system, in other words, the group of markets and institutions, including the securities exchanges, responsible for circulating the money from those who want to save to those that want to spend or invest it.
Investing means using the capital of a company to generate profit.
- Define terms relating to finance
Activity to learn how to define the terms relating to finance
Studying how the economy and the banks function not only allows us to gain knowledge, we must also be capable of putting it into practice through the responsible use of our money.
Saving money allows us to make payments and buy products and services in the future. Not only this, but managing our income is the best way to correctly administer ourselves and be able to count on having sufficient money to be able to react to unforeseen circumstances. Saving however, does not mean “not spending”, but doing so in an appropriate manner taking into account how much we have and what our needs are.
Making purchases in a conscientious manner is also a manner of being a bit more involved and taking into account the society and world that surrounds us. Specifically, the theory that defends the purchase of products that have been manufactured respecting the environment and human rights is called responsible consumption.
There are different types of expenses: The difference between the different types of expenses:
- Fixed: those that do not change.
- Obligatory: those that we have to assume.
- Necessary variable: those that may vary, but are necessary.
- Superfluous: those that we can do without.
Look at the following case: Candela pays € 500 rent every month (fixed expense), which represents half of her wages. This week however, she has an unexpected expense, her fridge has broken down and she needs to buy a new one (obligatory expense). Today, when returning home she went to the supermarket because she needed to buy eggs, which to her surprise had risen by 15 cents (necessary variable expense). Resigned she picked them up because she needed them. When reaching the check-out she saw some dolls that she thought were cute and she bought one to put on her keyring (superfluous expense).
- Define terms relating to finance
We use the word company to define any organisation which produces goods or services with the aim of making an economic profit. All companies, whether they are public or private have capital (own resources, such as money, machinery, tools, etc.) and human resources (personnel, made up from businessmen, directors, workers) destined to making a product that will be sold to obtain a profit.
The aim of all companies is to obtain the highest profit with the lowest possible costs. However, we must bear in mind that the existence of non-profit-making companies, in other words, companies whose aim is not to make a profit but to provide a service to society. This would be the case of public universities, foundations, etc.
In recent years, the governments of different countries have been promoting the development of the entrepreneurial (or business) spirit among the population. An “entrepreneur” is any person capable of assuming risks and using their talent to develop their own innovative business or professional project. Entrepreneurs must have a series of basic values such as the will to succeed, faith in themselves, tenacity, leadership spirit, know how to work in a group, etc. Anyone taking the risk to start a business today and who believes that their project may make a contribution would be an entrepreneur.
5.1The types of company
Generally speaking, different criteria are taken into account when classifying companies:
- Their size: they can be large, medium or small.
- Their legal form : they can be single shareholder companies or corporations. These in turn can be Limited Liability Companies (Ltd.), Public Limited Companies (PLC) or cooperatives.
- Their economic character: public, private or mixed.
- The origin of their capital: national or multinational.
- Their purpose: profit or non-profit-making.
Public Limited Companies and the stock exchange
Public Limited Companies (PLCs) are a type of company which have their capital (money) divided into multiple parts called shares. In turn, these shares can be traded on the stock exchange, which means these ownership rights can be bought and sold on this market; depending on how the price varies, the company will have more or less value.
5.2The departments of a company
In order to carry out the activity for which they have been created, companies have different departments or areas responsible for performing each one of the functions or steps to be followed in order to reach the common objective. We must bear in mind that not all the companies have the same departments and that the structure of the companies may be very different if we take into account all the activities that they could potentially carry out.
Generally speaking, companies have four basic departments:
- Production: responsible for manufacturing the product.
- Finance: responsible for the finance of the company and its investment policy.
- Sales: responsible for distribution and marketing.
- Human resources: responsible for the organisation and management of the personnel.
6.1The active population
The active population is formed by all those people of working age. They may be working or looking for work, for this reason we distinguish between employed population and unemployed population.
The active population EMPLOYED POPULATION UNEMPLOYED POPULATION People that work
(self-employed or employee).
or those on benefits.
6.2The inactive population
The inactive population is formed by those people who are not working and are not looking for employment.
The inactive population People who do not work and are not looking for work:
– Minors under 16 years of age.
– Students who have never worked.
– The retired.
– Those dedicated to looking after the home.
– Dependent persons.
Let’s analyse an everyday case. For example: The home of a young boy called Pedro, his mother is the only one working. She is a cook at a residential care home where she has been working for more than ten years. His father, however, has been on unemployment benefit for two years. As well as looking for work every, he takes care of the household chores and accompanies Pedro and his sister Julia to school.
If we look carefully, we will see that the parents of Pedro and Julia form part of the active population, their mother belongs to the employed population whereas their father forms part of the unemployed population. On the other hand, the elderly people at the residential care home where the mother works are members of the inactive population, as they are elderly (retired or dependent persons).
The multiculturalism of our society is defined within a global world where exchanges have become internationalised and borders and distances have become reduced.
Globalisation is a worldwide phenomenon which could never have come about without the new communication and information technologies or the revolution of transport.
Globalisation has been the cause and consequence of the expansion process of multinational companies, of the increase in economic exchanges, and of the migratory and tourist flows at a global level.
Webs de referencia
- Finance for all, financial education plan of the Spanish National Securities Market Commission CNMV).
- Gepeese, educational portal for financial education.
- Educational portal of the Bank of Spain.
- Educational material from the European Central Bank.
- The Educarchile educational portal of the Chilean Ministry of Education.