HomeIndustriesEconomic Activity | Definition, Type, Actors, Characteristics, Goals

Economic Activity | Definition, Type, Actors, Characteristics, Goals

An economic activity occurs when resources such as capital goods, labour, manufacturing techniques or intermediate products are combined to produce certain goods or services. Thus, economic activity is characterized by resource inputs, production processes and product outputs (goods or services).

Type of economic activity

1. Production

The purpose of production is to meet market demands. The resulting goods and services can be sold in the market or made available by the government to the public for a nominal fee. Production activities involve the manufacture of goods and services. People who make and sell these goods and services are known as producers. Producers combine factors of production such as labour, capital, entrepreneurship, and raw materials to convert them into various goods and services.

2. Consumption

It is an activity that consumes the utility (use-value) of goods and services used to fulfil people’s wants or needs. The purpose of production is to produce goods and services for consumption.

3. Distribution

Described as the movement of goods from the manufacturing company to the market and finally in the hands of consumers. Distribution is essential for any industry or service. Distribution management includes more than just moving products from point A to point B. It also involves receiving, storing, processing orders, billing, selling, delivery to customers/branches, returns/exchanges, and promoting goods.

Who are the economic actors?

Economic actors consist of individuals, businesses, and governments who act by maximizing their respective interests. For example, individuals will maximize satisfaction (utility) in consuming goods and services. Similarly, businesses seek to maximize profits in producing goods and services. A person or unit that can use land, labour or capital. Economic actors can be individuals, companies, governments or even society as a whole.

The following are the roles of economic actors in economic activities, which are divided into four categories:

Consumer household

Consumers have a crucial role, and without them, economic activity cannot function because the entire production process takes place with consumers in mind. Almost everyone in society is a consumer to some degree. The economic activity carried out by consumer households is to pay to consume goods and services produced by producers.

Household manufacturer

Producers make goods and services sold in the economy by using and combining production (land, labour, capital and technology). They also provide jobs for people who make products or who provide services.

Some of the roles of producers are supplying various goods and services in the market according to consumer demand. If the number of producers increases, the total supply of goods and services will also increase. In addition, this party is the entrepreneur and the main person in charge of all production factors such as land, labour, capital to allocate them for the smooth running of business activities.

Government household

Economic actors who play a role in regulating economic activities in a country are called government households. The government consists of institutions tasked with holding and issuing policies to influence economic activity. They include the central government, ministries, central banks, and local governments. In some sectors, the government also carries out various economic activities, especially those less attractive to the private sector (business). Examples are infrastructure development, defence, health and education services, and rail transport.

Overseas household

As actors, foreign people also have a stake in the economy of other countries. Economic activities carried out with foreign household economic actors are:

Trade between countries such as export and import activities

  • Human resources, both people from abroad who act as workers or groups of people who need workers
  • Investing in several business entities.
  • lender
  • Assisting, for example, during a disaster

Characteristics of economic activity

1. Satisfy 

The primary purpose of economic activity is to meet human needs. The need that must be fulfilled may be present or future. When a person does work to earn money and buy necessities for his family, it will satisfy current needs. On the other hand, when a person saves money from his current income to meet his needs after retirement, it will be a plan for the future.

2. Making a profit

All economic activities, which may be related to business, profession or services, help earn income. People carry out these activities to fulfil their needs with the help of funds obtained through economic activities.

3. Play a role in the development

Economic activities not only satisfy human wants but also become the basis for the economic development of society. When old needs are satisfied, new markets emerge. Financial resources are used to produce new products, and this process helps generate jobs and, ultimately, income. Social development is related to the economic activities carried out there.

Purpose

Economic resources are limited, and needs are many. It is essential to make a wise allocation of resources, so that maximum needs are met. Everyone assesses his needs and resources. He determines his priorities for applying his resources. Some conditions are urgent, while others may wait a while. Efforts are made to obtain maximum satisfaction from the use of available resources. Proper allocation of resources will ensure their best use.

In addition, resources must be utilized to the fullest. Various factors of production such as land, labour capital, etc. must be used to produce goods so that no part is left idle. For example, if a set of factors of production can make a certain number of units, then production must not be less than that amount; otherwise, the resource will not be fully utilized.

Conclusion

Each actor has an essential role in supporting the running of economic activity. Without one of the actors, this activity can’t take place optimally. Therefore, we cannot ignore their respective roles.

Also read: Overcoming Economic Downturn for Companies

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Anatha Ginting
A full-time Content Writer at HashMicro. Strive to develop my writing skill and knowledge in terms of business, technology, and other relevant issues.

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