4 Main Sectors of economic activity:

Primary sector involves the extraction and production of raw materials such as corn, coal, wood and iron. 2. Secondary sector involves the transformation or raw and intermediate materials into goods e.g. manufacturing steel into cars or textiles into clothing 3. Tertiary sector involves the provision of services to consumers and businesses such as baby sitting, cinema and banking. 4. Quaternary sector involves the research and development needed to produce products from natural resources Other sectors 1. Public sector or state sector 2. Private sector privately run businesses 3. Social sector or voluntary sector In U.S. economy- theres the international sector that deals with the imports and exports of the country
1.

Major economic activities: Fishery Agriculture Tourism Philippines: 1.Automotive 2.Electronics 3.Pharmaceutical 4.Outsourcing 5.Mining 6.Transportation Economic process the transformation of the economic resources into finished goods and services as manifested in the circular flow model.

The Circular Flow of the Production Process

ECONOMIC RESOURCES

HOUSEHOLDS

PRODUCING UNITS GOODS AND SERVICES

Raw Materials
Raw Material Firm Intermediate Good Firm

CONSUMERS
FINAL GOODS Intermediate Goods

Final Good Firm

INCOME FLOW OF WAGES, INTERESTS, RENTS

HOUSEHOLDS

PRODUCING UNITS

PURCHASES OF GOODS AND SERVICES

Goods and Services Factors of Production (land, labor, capital, entrepreneur)

Household Sector

Business Sector

Payments of Factors (rent, wages, interest, profit)

Payment of Purchase of goods and services.

Economic systems : refers to a set of economic institutions that dominate a given economy with the main objective of solving the basic economic problems.

Four economic systems:

1.

Traditional economy - is one whose economic decisions are made with great influence from the past -it finds answers to the three economic questions by copying or duplicating the decisions made by previous generations - economic decisions are based from past experiences handed down from generations to generations as used by forefathers and are therefore very primitive. - tribes are examples of this economy -Mongolia applies this kind of economy

Characteristics of traditional economy:

1.Communal land ownership 2. The leaders decide on the management of agricultural production which is the basis of the economy 3.The production, the distribution, and the use of the economic resources are the based on traditional practices 4.The new technologies are not welcomed since they are in contrast with the traditional practices of their ancestors 5.The economy is only its third priority while culture and religion are its foremost priorities 6. Mines are used to gather raw materials for production

2. Command Economy
Under this economic system, the factors of production and distribution are owned and managed by the state. Decisions in answering the basic economic problems are planned, done and dictated by the government. Citizens under this economic system have little or no political and economic freedom. The opposite of market economy North Korea and Cuba applies this kind of economy

Characteristics of the command economy:

1.Resource allocation is done by the government 2.Presence of central planning of all economic activities 3. There is no free competition (the government is the only seller) 4. Only the government plays the role in setting legal framework for economic life production and distribution of goods and services 5. The products or needs of the people are distributed based on priorities set by the committee

3. Market Economy
Individual consumers and businesses interact to solve the economic problem. The price of the commodity dictates what goods and services will be produced, how and for whom it will be produced. The opposite of command economy. HongKong, France, Canada, Mexico, Singapore, Philippines, Peru, China applies this kind of economy Market any method by which, or place at which, buyers can communicate with sellers.

Characteristics of market economy:

1. 2.

3. 4.

5. 6.

The private sectors owns and manages the means of production The price system in the market structure applies to determine how much will be paid for a certain commodity or service It is known as laissez-faire or free enterprise There is a minimum government interference on decisions pertaining to the management of the economy Existence of competition often results to monopoly There is presence of economic power

Pillars of free enterprise

1. Private property 2. Competition Competition opens the way for new ideas and superior productivity. Competition is not a brutal conflict between companies. It is not economic warfare between corporations who are out to make millions at the expense of the average consumer. Rather, competition is a vigorous, moral expression of freedom. We are free only when we can cooperate voluntarily with other people and when we are permitted to make individual choices. Competition allows us to make those personal decisions and to act upon them. Companies work hard to please the consumer who is always looking for better, less expensive products. If a business wants to succeed, it endeavors to build up a reputation for prompt, friendly, effective service to please the consumer and customer. Competition is generated by millions of consumers who have economic freedom to express their likes and their dislikes. Business, agriculture, commerce, and industry attempt to fill our needs by striving to put out improved products and services. This is healthy, free competition.

Pillars of free enterprise

Fruits of competition: 1.Free market competition leads to new products and better products, 2.superior services, 3. increased production, 4. more jobs, higher wages, and ultimately a higher standard of living for everyone. 5.when competition is based upon fair play in the free market, it brings out the best in business as well as in individuals. The larger the marketplace, the greater the choice available and the greater the competition. Competition results in greater efficiency and lower prices, whether it be between two companies in the same country or two companies on opposite sides of the globe. 3. Price system - The price system is the link that connects consumers, producers and markets. Prices tell us about the demand for a good, and they also tell us how scarce or abundant the good is.

Free enterprise :
Free enterprise - is not a humanly devised plan for economic activity. Instead, it is the natural, voluntary collaboration of millions of individuals sharing their respective abilities, wisdom, aspirations, energy, skills, and creativity for personal good and the general welfare of everyone.

Free enterprise is industry, agriculture, finance, and commerce. Most important, it involves all of us teachers, mechanics, nurses, clerks, students, corporation presidents, housewives, and store managers. Capitalism is millions of individuals cooperating freely to provide products and services for one another. We buy, sell, work, and produce, and thus manage our own economic lives as we choose.

Free enterprise:
Free enterprise is the freedom of individuals and businesses to operate and compete with a minimum of government interference or regulation. It enables individuals and businesses to create, produce, transform, develop, innovate and compete in the marketplace. As they are able and willing, enterprising people produce goods and services for profit, offer their labor for wages and own the resources needed to produce and sell goods and services. In this system, no one forces people to be creative, productive or enterprising. Instead, they pursue what they believe to be best for them. By producing the goods and services that society values most highly, a free enterprise system results in the greatest efficiency, or lowest costs, of any economic system.

4 components of free enterprise:

1.

2.
3. 4.

Householdsthe Owners Businessesthe Organizers Marketsthe Brokers Governmentsthe Protectors

Advantages of free enterprise system:

1.Economic freedom. -Unless we have full control of our labor, possessions, and income, we cannot truly say we live in freedom. Our right to private property enables us to use it and our energies for constructive, creative work. We strive, succeed, fail, produce, invent, save, invest, spend, and work to make a better life for ourselves and others.

Advantages of free enterprise system:

2. Individual freedom We have the right to make economic choices, and we accept the consequences of our decisions. We can, should, and will overcome difficulties in life when we are self-responsible. This is the real meaning of independence. We cannot be fully independent if we are not held responsible for managing our personal lives. In turn, we cannot be held responsible for our activities if government makes our economic decisions for us.

Advantages of free enterprise system:

3. The free-enterprise system gives us the opportunity to realize a true sense of self-worth, justified sense of worth and dignity. We reap what we sow. Hard work, individual initiative, and personal responsibility are rewardednot just from the standpoint of material prosperity but also from the standpoint of self-respect and personal fulfillment in life. Working freely in a free society, we also have shown that capitalism and the free market are the best way for producing and distributing wealthwealth that has provided our high standard of living and the means to fight poverty, disease, illiteracy, and the like. 4.Political democracy

Role of profits:
1. It is divided between funds for reinvestment and funds to pay shareholders who have stock in the company. These shareholders are just ordinary, average people from all walks of lifeprofessors, farmers, small businessmen, factory workers, and retired people. They have labored over the years, saved their money, and freely invested in the work of the corporation. 2.profits are used to improve and expand production. Profits are reinvested, providing business with needed capital Capitalis put to work replacing worn-out equipment, constructing new plants, and otherwise building up a more efficient, productive enterprise. This capital reinvestment creates more jobs, higher wages, better working conditions, and more prosperity that benefits all of us. 3. maintenance of job security.

4. proof of the economic justification for the existence of a given business or industry.

Role of government in a free enterprise economy:

1.to define and enforce the rules of society, preventing fraud, violence, force, and theft. 2. to maintain law and order, 3.protect peoples right to own property and enforce voluntary contracts people enter into. 5.Its duty is to protect economic freedom, enabling individuals and businesses to work freely.

4. Mixed Economy :
Mixed with the elements of traditional, command and free market. Japan, USA and Sweden applies this kind of economy

Characteristics of a mixed economy:

1.The means of production are owned and controlled by the private sector as well as the government 2. The people decide on economic activities within the economy 3. Combinations of the best features of capitalist and command economies are observable in the market 4. The problem of distribution of goods and services and allocation of economic resources are determined through a combination of market system and governmental laws and policies