What is the economy

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The term economics encompasses the notion of how societies use scarce resources to produce valuable goods, and how they carry out the distribution of goods among individuals. This is based on the study of how man can manage the resources available to satisfy his needs. It also studies the behavior and actions of people.

For centuries the economy has been used, as its etymological meaning suggests, as a set of rules or norms to wisely manage a house; that is, the family and, by extension, the community.

It was in the Renaissance that attempts to systematize economic ideas began to appear, with the emergence of mercantilism. The latter and the speculations of the Physiocrats preceded the classical economics of Smith and his 19th century followers. Great sociologists such as Saint-Simon, Comte, Marx, and Spencer, proposed general models of the evolution of economic systems through human history.

The economy is divided into two fundamental parts: microeconomics and macroeconomics. The first deals with elementary economic units such as the individual, the family and the company. Study economic variables, such as investments, production, costs, income, expenses, savings, etc.

The second part deals with economic activity as a whole. It studies the behavior of large economic variables such as national production, national income, economic and monetary policy, income and public spending, inflation, unemployment, global production of the country, etc.

Therefore, the investigation of the main economic problems and decision-making are based on four fundamental questions about production: what to produce? When to produce? How much to produce? Who to produce for?

The objective of the economy is based on improving living conditions and the economic support that people and societies have. It is important to note that available resources are limited (scarcity), but human needs are unlimited. When a person decides to assign a resource to a specific use, he is discarding its use for another purpose. This is known as the opportunity cost.

He is also responsible for the study of all phases related to the production process of goods and services, from the extraction of raw materials to their use by the end consumer, which determines the way in which limited resources are allocated.

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Objects of study of the economy

The main objects of study of the economy over time have been:

• Setting prices of goods and productive factors (land, production, capital and technology)
• Behavior of financial markets
• The law of supply and demand
• The consequences of state intervention in society

Approaches to the economy

Various approaches to the study of economics have been developed. Initially as part of the study of political and social history, only its economic aspects were considered. Over time, economic history was acquiring a place of its own, in which institutions such as the Constitution of a country, the history of certain taxes or of a particular sector, which in general are part of the economic development of a nation, were studied.

The use of figures and explanations of the development of countries soon became an irreplaceable ingredient for writing economic history. Therefore, the work of creating national accounts since the beginning of the 20th century in some countries was an essential factor for the discipline.

Some time later, various theories about economic development were promoted, driven by understanding the various changes, stages, or predictable and identifiable periods.

These approaches were those of Marxist origin based on the class struggle, the Schumpeterians who consider changes based on innovation and technological change, and those of the style developed by Walter W. Rostow that are based on the stages of development of societies. and economies.

It should be noted that the doctrines of economic thought provide more specific definitions. The most important currents that have existed: mercantilism, physiocracy, classical school, Marxist school, Austrian school, neoclassical school, Keynesian school, monetarist school.

It can be said that the definition of economics provided by mercantilism is not the same as that provided by the classics, Marxists or Keynesians. Although the essence of the economy and the object of study is similar, the way of evaluating production and the relationships established between agents and markets are different depending on the school to which it refers.

Economy as a human activity

The institutionalization of economic activity confers this unity and stability; it gives rise to a structure with a specific function in society and modifies the place of economic activity in society, thus adding importance to its history; focuses interest on values, motivations and practical performance. Unity and stability, structure and function, history and practical action reveal the content of our claim that the human economy is an institutionalized activity.

The human economy, then, is integrated and submerged in economic and extra-economic institutions. The inclusion of the latter is vital. It can be said that both government and religion are fundamental in the structure and functioning of the economy of a nation.

The study of the changing place that the economy occupies in society, then, is nothing more than the analysis of how economic activity is institutionalized at different times and places.

Economics as a scientific discipline

The economy began to be constituted as a specific discipline that was studied as an organized society to produce and distribute the fruits of production and consume them. This discipline was political economy, it is the science that deals with the development of social relations of production, studies the economic laws that govern the production and distribution, exchange and consumption of material goods in human society in the various studies of its development.

Economic activities

Productive activities and economic activities are part of the process of fundamental factors in the production of goods and services based on satisfying the needs of consumers for the economy. These include commercial activities, since commerce also adds value to the economy. Among the economic activities are:

The production

It is the process by which economic goods and services are created. It is the main activity of any economic system that is organized precisely to produce, distribute and consume the goods and services necessary for the satisfaction of human needs.

Any process by which an object, whether natural or with some degree of elaboration, becomes a useful product for consumption or to start another production process. The production is carried out by the human activity of work and with the help of certain instruments that have a greater or lesser perfection from the technical point of view.

Distribution

It is a set of actions that take place from the moment the manufacturer makes a product until the final consumer buys it. The purpose of distribution is to guarantee the arrival of a product or the customer.

Distribution is one of the factors or variables of the marketing mix. Decisions on distribution are strategic for companies. It is not so easy to vary a distribution channel, as they are generally regulated through contractual links when other companies participate or have required a very expensive investment when it comes to their own network. Any change must be considered in the long term.

Exchange

The exchange is an act and the result of the exchange: to make a reciprocal exchange of one element for another. When an exchange occurs, therefore, something is given and something else is received.

The exchange can take two types of modalities. On the one hand, barter, which will be the exchange in which money does not come into play or intervene, and on the other hand the market, which is certainly opposed to the previous one in its basic condition, since in this case, the economic market. The exchange occurs with a cash mediation.

Consumption of goods and services

Economic or scarce goods and services are produced in different economic activities to satisfy a need or a desire.

In the production of goods and services, productive or productive factors such as land, labor and capital are used. Natural resources are not economic goods, but they can be when they are extracted or go through a production process. For example, wild animals or minerals.

Economic goods are produced through primary or secondary activities and are sold in markets at a certain price because they have economic value.

On the other hand, economic globalization is based on the idea that world trade and productive specialization allow a more efficient use of the capacities of each country to produce the goods that they can best obtain or manufacture.

Study economics

The economics degree is a very broad career, which does not train people solely to investigate economic opportunities, but provides a comprehensive education, with a broad social perspective on the relations of production and exchange, social inequality and logical reasoning..

Economics is a career that takes a lot of dedication. The student must learn many economic and mathematical models that are much more complex than the current ones. Having to learn topics related to disused models can be tedious for students, although in all majors there are topics that those who choose them dislike, indicates a graduate of the Bachelor of Economics.

Price fixing

A company must set a starting price when it develops a new product, when it introduces its normal product into a new distribution channel or geographic area, and when it is bidding for new contracts.

The company must decide where it will position its product in terms of quality and price.

The price is also one of the most flexible elements: it can be changed quickly, unlike the characteristics of the products and the commitments with the channel. This is an element that bases marketing (producer of income) as well as many others that in the same way produce costs.

The price competition is an enemy for entrepreneurs. But despite this, many companies do not manage prices well.

The most common mistakes

• Pricing is too cost-oriented.
• Prices do not change often enough to take advantage of market changes.
• The price is set independently of the rest of the marketing mix and not as an intrinsic element of the market positioning strategy.
• The price is not varied enough for different items, market segments and buying occasions.

Productive factors

The classical economist states that to produce goods and services it was necessary to use resources or productive factors: land, labor and capital. This classification of factors is still widely used.

By land we understand not only agricultural land but also urbanized land, mineral resources and natural resources in general.

Capital is understood as the set of resources produced by the hand of man that are needed to manufacture goods and services: machinery or industrial facilities, for example. This should be clear, as the word 'capital' is often used incorrectly to designate a large amount of money.

The money that will be used to buy consumer goods cannot be called capital, this will only be the capital once it is used to obtain goods and services, this is also called financial capital.

Behavior of financial markets

Financial markets make up a space whose objective is to channel the savings of families and companies towards investment. In such a way that people who save have a good remuneration for lending that money and companies can have that money to make investments.

The law of supply and demand

It can be said that it fosters the basic principle on which the market economy is based. This principle reflects the relationship between the demand for a product and the quantity supplied of that product, taking into account the price at which it is sold.

According to the market price of a good, bidders are willing to manufacture a certain number of that good. Like the plaintiffs, they are willing to buy a certain number of that good, depending on the price. The point where there is a balance because the demanders are willing to buy the same units that the bidders want to manufacture, for the same price, is called market equilibrium or breakeven point.

Economy growing

Economic growth is one of the objectives of every society and implies a remarkable increase in income and in the way of life of all individuals in a society. There are many ways or points of view from which the growth of a society is measured. One could take investment, interest rates, the level of consumption, government policies or policies to promote savings as axes of measurement; all these variables are tools used to measure this growth. And this growth requires a measure to establish how close or close we are to development.

International Trade

International trade is the exchange of goods as products and services between countries around the world. It can be said that the origin is in the exchange of wealth or products from tropical countries for products from temperate or cold zones. As improvements in the transportation system were occurring and the effects of industrialism were greater, international trade was increasing due to increased flows of capital and services in the areas most backward in development.

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Types of economy

Economics of Education.

The economics of education deals with educational goods that are a form of services produced by society. Educational goods have their peculiar characteristics: utility and scarcity.

• Scarcity (both individual and social).
• Utility (both individual and social).

Market economy.

It is a way of producing, consuming and distributing wealth that is based on the principles of supply and demand through the market. There is full freedom for economic agents to buy and sell.

Supply Economy.

The economist and entrepreneur generally state that with the supply economy, consumers will end up benefiting from a greater supply of goods and services at lower prices. Typical policy recommendations from the supply economist are lower tax rates and lower legal regulation of economic activity

Heterodox Economy.

Informal economy.

It comprises more than half of the world's workforce and more than 90% of micro-enterprises worldwide. Informality is an important feature of global labor markets. There are millions of economic units in operation and hundreds of millions of workers trying to earn a living in informal conditions.

The term “informal economy” encompasses a great diversity of situations and phenomena. Indeed, the informal economy manifests itself in varied forms in and within different economies. Formalization processes and measures aimed at facilitating the transition to formality must be tailored to the specific circumstances faced by economic units or workers in different countries and categories.

Free Economy.

This represents an economic system based on the free play of market forces, through the information provided by the price system, economic agents adjust their supply and demand and make production, consumption, saving and investment decisions to optimize those scarce resources.

National economy

Planned economy

It belongs to an economic system in which all decisions about what goods or services should be produced, in what quantity and at what price are left to the central bureaucracy. In practice, it can lead to gross inefficiencies, commodity shortages and the emergence of black markets. Central planning is justifiable, on a limited scale, in countries with a very low standard of living.

Solidarity Economy

The solidarity economy or is a theoretical and practical search for alternative ways of doing economy, based on solidarity and work. The principle or foundation of the economy of solidarity is that the introduction of increasing and qualitatively higher levels of solidarity in economic activities, organizations and institutions, both at the company level and in markets, economic policy and public policy, increases micro and macroeconomic efficiency, along with the generation of a set of social and cultural benefits that favor the whole of society.

Submerged economy.

The black economy is any economic activity that escapes the control of the treasury and the tax agency. As is logical, this activity does not count directly in the GDP (Gross Domestic Product) of a country. This involves various activities where potential taxpayers of a nation do not cancel taxes, for such a reason; their activities are cheaper. In turn, by not paying taxes, they commit labor fraud by hiring workers who are paid in black, that is, without the control of the Administration.

Scale economics.

It refers to the power that a company has when it reaches an optimal level of production to produce more at a lower cost, that is, as production in a company grows, its costs per unit produced decrease. The more you produce, the less it costs to produce each unit.

What is an economic system.

As a definition, an economic system is a way of producing, consuming and distributing goods and services. This concept also includes the relationships between the different institutions and agents, as well as the definition of the economic and social structure of a society.

Capitalist economy.

Its purpose is the accumulation of wealth for its reproduction, minimizing costs and maximizing benefits. This science seeks the welfare of society, through the actions of the state, so that everyone has a similar standard of living, without social classes.

Socialist economy

It is based on the development of the capital accumulation margin. In addition, it promotes the access of citizens and communities to emerging social practices of production, distribution and consumption of goods and services with a self-sustaining or self-managed profile.

Mixed economy

It refers to a system of economic organization in which the performance of the private sector is combined with that of the public sector, which acts as a regulator and corrector of the former. Here, most economic decisions are resolved through the interaction of sellers and consumers in the market (law of supply and demand). However, the state plays an essential complementary role.