UNIT 1: ECONOMIC ACTIVITIES AND

GEOGRAPHICAL AREAS

1. ECONOMIC ACTIVITY. COMPONENTS AND SECTORS

1.1. Economic activity

Economic activity is the combination of tasks done in order to obtain goods

to satisfy their needs. These goods can be material (food, manufactured
products, cars), or immaterial (services such as education, or health care).

1.2. Components of economic activity

There are 3 basic components:

• Production: it is the number of goods that we obtain from the

economic activity.
• Distribution: the transfer of products to consumers and their sale on
the market.
• Consumption: the use of the goods that result from the production.
 1.3. Sectors of economic activity

There are 3 economic sectors:

• The primary sector: includes the activities related to the extraction of

natural resources. These are agriculture, livestock farming, mining,
forestry and fishing.
• Secondary sector: activities concerned with transforming the natural
resources. These are industry and construction.
• Tertiary sector: activities that provide services. These include
transport, tourism, trade, education, health care, etc.

The importance of the three economic sectors for employment and wealth of a
country (Gross Domestic Product, or GDP) reveals major contrasts around
the world.
2. ECONOMIC AGENTS AND THEIR RELATIONSHIPS

- Economic agents are the subjects involved in the economic activity. They
are businesses, families and the State. They have relationships between
them and form and economic circuit.

2.1. Businesses

- They are the basic units for the production of goods.

- Their function is to produce, distribute and sell goods to consumers.

The aim of a business is… a)to help other people, b)to obtain economic
profit, c)to destroy the world.

- There are various types of businesses, depending on their size, capital

and organisation:

• Size: there are small (1-50 employees), medium (50-250 employees)

or large (+250 employees).
 • Capital ownership: we distinguish between public enterprises(the
capital, or money, involved is provided by the State; private
businesses (the capital is provided by a number of partners) and
mixed businesses, with public and private capital.

• Social organisation: businesses can be:

o Public licensed companies: capital is divided into shares.
o Limited companies: the capital is provided by a number of
partners.
o Cooperatives: are managed by the partners who provided the
capital. All the partners have the same power.

- Therefore, the businesses sell goods produced by families and the State.
Companies received an income (beneficio) which they use to pay
salaries to families for their work, and taxes to the State.
 2.2. Families and the State
• Families: are the basic unit of consumption. Their function is to
spend money on buying goods. In the economic circuit, they sell their
work to companies and in exchange they receive a salary, which they
use to pay for the goods they consume and to pay taxes.
• State: it is an unit of production and consumption. Its functions are
to produce material goods and public services that are very important
for all the society (roads, hospitals, schools). The aim of the State is
to provide welfare (bienestar).

3. PRODUCTION FACTORS (I). RESOURCES, CAPITAL AND

TECHNOLOGY.

3.1. Natural resources

- They are elements provided by nature that have an economic use.

These include water, soil, plants, animals, minerals, energy sources…
everything. The exploitation of these resources provokes the basic economic
activities: agriculture, forestry, livestock farming, etc.

- Types of natural resources:

• Depending on how long they last, can be renewable (they are

renewed after a short period of time, like water) of non-renewable
(their renewal recquires a lot of time, like coal or oil).
- The problems raised by resources:
Nowadays, many resources that we use are very scarce or non-
renewable. This gives rise to 2 problems:
• Exhaustion and overuse: exhaustion is when we consume
resources at a higher rate than their rate or renewal. To avoid this, it
is necessary to use the principle of sustainable development. This
concept means to use the resources rationally, avoiding
consumerism (consumismo) and encouraging to use them well, as
well as recycling.

• International conflicts: some important natural resources are very

scarce, and there are wars and conflicts to control them. Some of this
resources are coltan (used for the batterys of computers and cell
phones), diamonds, oil, and in some parts of the world, even water.
3.2 Capital and technology:

• Capital is all the non-natural resources that we need in order to

produce things:
o Physical capital: things like machinery and factories.
o Financial capital: money and credits from the banks.
o Human capital: the people that work in the companies.

• Technology: is a combination of knowledge, methods and procedures

used in the production process. It can be manual (a person handles the
tools), mechanised (a machine provides the strength but a person
operates the machine) and robotised (the machines do everything, and
people only have to control them).
4. PRODUCTION FACTORS (II). LABOUR

- What is labour? It is the physical or intellectual effort made by people in

order to produce material goods or services. People receive a salary in
return for their labour.

4.1. The employment situation

- We divide the population into active and inactive:

• Active population: also called labour force. It is the combination of

employed population (people working) and unemployed population
(people who are not working but are looking for a job).

• Inactive population: people who are not available to work

(pensioners, students) and those who work at home (homemakers).

- In the world, the percentage of working people is the 64% over the total,
but it is different depending on the country.
4.2. The labour market

- The labour market is formed by:

• The supply of work from businesses.

• The demand for work from individuals.

- In the labour market, the higher is the qualification of people, the higher their
salary will be. The less qualified workers receive less salary and their jobs are
more unstable.

4.3 Labour problems

- The most important problem is unemployment.

• In the developed countries: unemployment rises due to the increase of

machines in factories and the transfer of economic activities to cheaper
locations.
• In the underdeveloped countries: the unemployment is due to
economic underdevelopment and the lack of well trained workers.
Unemployment is a very serious deal. Unemployment produces less
consumption, sales and production, which means less work for everybody. It is
a vicious circle.

- The working conditions are also important:

• In the developed countries: these conditions are regulated by States’

labour laws. The workers sign job contracts with the employers.
• In other countries: there are many abuses, such as the use of child
labour (more than 265 millions children), or employment discrimination
against women (this occurs in many parts of the world, also in our
country). Women receive lower salaries than men for the same job and
fin it difficult to balance work and family life.

5. ECONOMIC SYSTEMS

Economic systems are the different ways of organising a country in

terms of economy. There are 3 main systems: capitalist, socialist and
mixed system.

5.1. The capitalist system

- The economic activity is regulated by the market. The market is regulated

by something called law of supply and demand.

• The market decides what is to be produced depending on the goods

or services that are demanded. The market also decides how to
 produce goods, but always regarding the highest economic profit for
the businesses.
• In this system, the property is basically private. There is free
competition between companies and every individual seeks its
maximum profit.

- This system has been adopted by the majority of the world’s

countries.

5.2 The socialist system.

- The economic activity is regulated by the State.The State decides what

has to be produced and how. We also call this system planned system.

• So, the State decides what is going to be produced and how, and
establishes the prices of the products and workers’ salaries.
• The property of the companies belongs to the State. The private
property is very scarce. The aim of the State in this system is
achieving social equality.

This system only survives in Cuba, North Korea, Laos or Vietnam.

 5.3 Mixed systems

- It is a combination of capitalist economy with economic intervention by the

State. We know this system as welfare state.

• In this system, the market and the State decide what to produce and
how. Although the prices are not regulated, the State guarantees the
basic needs of all the citizens (education, health care).
• The property is mainly private, but there are measures to redistribute
wealth.

-This system exists in many countries, especially in Europe.

6. CURRENT ECONOMIC TRENDS (I). IDEOLOGIES AND PROBLEMS

6.1. The spread of capitalism

- Since 1990, the capitalist system has spread through the world due to
the disappearance of many socialist countries.

- However, there are many ideologies inside of the capitalist system. We

will study two of them:

• Neoliberal ideologies: defend that the economy has to be completely

free, which means that the State cannot intervene. This ideology defends
that everything must be regulated by the market, and the State only has
to defend the functioning of the free market.
 Therefore, the neoliberals propose that the State should not spend
money in public expenditures (pensions, public education, public health
care system) and salaries should be reduce in order to increase
company profits.

• Keynesian ideologies: defend that the State should intervene a little in

the economic activity. Why? Because the State can correct the
unfairness created by capitalism.
The keynesians are in favour of public expenditures (public education,
health care system) and of the increase of salaries.
6.2 The problems of capitalism

• Political problems: the owners of major businesses influence the

decisions of the politicians.
• Economic problems:
o Monopoly: if a company eliminates its competitors, it can set the
price that it wants for consumers. This is totally unfair.
o Economic crisis: capitalism creates periodic crisis. Every 15-20
years there is an economic crisis, which produces a decline in the
demand, which leads to lack of production and, therefore,
unemployment.
• Social problems: sometimes, the investment in goods and social
services is not enough, which is bad for the poorest social groups of a
country.
• Environmental problems: capitalism promotes unsustainable growth,
based on the constant increase of production and consumption.
7. CURRENT ECONOMIC TRENDS (II). ECONOMIC GLOBALISATION

- Globalisation is the union of national economies in a global market, in

which all the areas of Earth are interconnected.

7.1. The causes of globalisation

• Advances in telecommunications: enable the contact between
people and businesses from all over the world.
• Improvements to means of transport: nowadays is easier than ever
to transport people and goods from any part of the world.

7.2 The promoters of globalisation

• International organisations: like the World Trade Organisation (WTO),

the International Monetary Fund (IMF), the World Bank and the G20 (a
group of the 20 more industrialised countries in the world) are very
interested in spread globalisation.

(Multinationals: as they sell goods or services in many countries, they are also
interested in globalisation, because it will be positive for them.
7.3 The impact of the globalisation in the economy

• The production of goods: is organised in a global scale. The

multinationals locate their factories in some poor countries, because it is
cheaper to produce there.
• The exchange of goods, services, capital and technology takes
place worldwide. Poor countries have taken advantage of the positive
aspects of globalisation and have improved their economies.
• The consumption of goods: in theory, there is a higher consumption in
most countries, but only the rich people can afford to buy these goods.
• Destruction of environment: the irrational exploitation of many
resources has led to the destruction of forests, rivers, etc.

8. WORLDWIDE GEOECONOMIC AREAS

We can distinguish between three areas.

8.1 The Triad (European Union, Japan, United States and Canada)

- These countries have been traditionally developed and rich.

- These countries have the following features:

• Agrarian activities are not important.

• Industries are very important, and they are highly advanced in terms of
technology.
• The consumption is very high, because their inhabitants have high
income.
• They are the richest countries in the world.
8.2 Emerging economic powers

- These countries are growing faster than the rest of the world.

• Some of these countries were underdeveloped not much time ago.

o In Asia: China, India, Singapore, Indonesia or South Korea have
grown very quickly in the last century.
o In America: Mexico or Brazil are also growing.
• In other cases, some of these countries used to be very powerful in the
past, but they have declined. For example, Russia.
• Others, like South Africa or Australia, play an important role in their
region.

-The most powerful countries of this type are in a group called BRICS
(Brasil, Russia, India, China and South Africa).

- Their production is based on their abundant natural resources and increasing

technology in industries.
8.3 Underdeveloped areas

- These countries are located in some parts of Latin America, Asia and mostly
in Sub-Saharan Africa.

- Their economies are based on traditional farming and their industry is very
poor.