UNIT 2: ECONOMIC ACTIVITY AND SOCIETY

1 THE ECONOMY AND GEOGRAPHY

As humans, wea adapt to our environment and alter it to obtain more
resources. We have developed methods of producing, exchanging and
consuming goodsand services to mee tour needs.
The economy is the collection of goods, services and activities that we
humans have developed to mee tour needs. It constitutes the wealth of a
given geographic area.
Economic activity allows us to survive, can even make us rich and
prosperous, but it can also make us bankrupt.
ECONOMIC GEOGRAPHY

Economic Geography is the field of Geography that connects economic

activity with the location in he world where it takes place.
1) It is the study of how location affects economic activity across the
world, in other words, the impact of geography on the economy:
o Characteristics of the terrain.
o Climate of the geographic area.
o Natural resources in the region.
2) It allows us to assess the influence and impact of economic activity
on our physical surroundings and how space is organised. For
example, cities with lots of companies attract more people, supply
more jobs and experience more growth.
3) It allows us to analyse if and why there is unequeal Access to
resources among the population. As our relationship with the physical
environment and other human beings becomes more complex, the
inequalities in the way people live can increase.
UNEQUAL DISTRIBUTION OF ECONOMIC ACTIVITY
The distribution of economic activity across the world is exremely unequal.
In order to identify the areas of the world with more or less activity, we use
different indicators:
1. Gross domestic product (GDP): measures the total goods and
services producd in a geographic area in a given year.
2. Human Development Index (HDI): measures such things as Access
to education and healhcare.
3. Employment data for a country.
4. Household consumption: how much money families spend.
5. State investment.

The geographic distribution of the above indicators tell us the folowing

about the distribution of wealth and inequality around the world:
1. The majority of Africa and some parts of Asia and Latin America
have less economic activity.
2. Economic acivities are concentrated in three regions of the world:
North America, Europe and East Asia.

STAGES, SECTORS AND ECONOMIC AGENTS

In order to undersand the elements involved in a countrys economic
activity, we need to analyse three aspects.
STAGES OF ECONOMIC ACTIVITY
1. Production:
Creating a producto r providing a service. Production is located close
to resources such as: natural resources, energy sources, workers and
capital.
2. Distribution:
Delivering products and services to consumers or customers. This
requires Access to good transport and telecommunications
infrastructure.
3. Consumption:
Acquiring products or services in Exchange for money. This is most
often located in areas where the population has a certain amount of
purchasing power.

SECTORS OF THE ECONOMY

1. Primary sector:
These are economic activiies that directly involve the use of natural
resources such as: agriculture, livestock farming, fishing, forestry and
mining.
2. Secondary sector:
These are industrial and construction activities.
The manufacture of material goods:
o Finished goods: supplied directly to the consumer (e.g.
mobile phones)
o Intermediate goods: used by other industries (e.g., the
batteries in a computer).
3. Tertiary sector:

These are economic activities related to services. Workers in this

sector supply other people and companies with knowledge and skills:
hotels and restaurants, banking, education, healthcare, etc.
ECONOMIC AGENTS
1) Public sector:
These are town councils, regional governments and the State, as well
as state-owned companies.
They fulfil the function of providing essential services to the
population and companies. These include education, healthcare,
security and infrastructure. These services are paid for with taxes
colledted from household and companies.
The public authorities also create consumer protection laws to protct
people, prevent the abuses of monopolies and oligopolies and
regulate free and fair competition.
2) Households:
Individuals and families work to obtain the necessary income to
purchase goods and services, which they then consume to meet their
needs. They also pay taxes to maintain public services.
3) Companies:
These create products and services which they supply to society.
Their activity generates profits. This allows them to create jobs, make
investments and pay taxes.

3.

THE RESOURCES NEEDED FOR PRODUCTION

FACTORS OF PRODUCTION
Factors of production are all the resources used to produce goods and
provide services. They are divided into three groups:
1. Labour:
The work done by humans to carry out an activity. Some types of
labour are associated with a geographic area:
o Skills and tchnical knowledge of the people.
o Experience and know-how.
2. Land:
Things provided by natue that we use to obtain a profit. Different
geographic areas have natural resources which are specific to them:
o
o
o

Water
Minerals
Energy sources (oil. Natural gas, Sun, wind, rivers, etc.)

Plants and animals.

3. Capital:
The assets already produced or developed that can be then used to
produce new products and services. Some types of capital are specific
to a geographic area:
o

Physical: capital goods, such as buildings and machinery.

Other types of capital are mobile:

o
o
o

Financial: money and investment drive economic activities.

Technological: It is important to have technology, research
and development of new applications (R&D)
Human: workers can move from one place to aother, taking
their skils, creativity and technical knowledge with them.

THE IMPACT OF FACTORS OF PRODUCTION

Economic activity plays a decisive role in trnsforming our physical
surroundings. This has a range of impacts:
-

Positive impacts:
Some regions have many resources: financial capital infrastrcture,
advanced technology, etc. This allows them continuous economic
growth, which is good for the wellbeing of the general population.
North America, Europe and parts of Asia and the Pacific are examples
of this. Economic growth often means a better standard of living.
In the most-developed countries there is also a trend towards
sustainability within economic growth.

Negative impacts:
The activities associated with extracting gas, oil and mineral deposits
or forestry tend to have harmful effects on the environment. These
effects, which we call negative externalities, cause the deterioration
of the environment in three ways:
o Depletion of natural resources due to overexploitation.
o Destruction of natural ecosystems to create artificial
spaces such as industry.
o Overloading the environment with waste (harmful gases,
pollutants in the water, etc.)

4. THE MARKET ECONOMY

THE MARKET ECONOMY

The market economy or capitalist economy is the economic system

base don the following principles:
-

Free Competition:

This gives companies complete freedom to operate in the market, but

in rder to survive, they need to maintain their profits by:
o
o
-

Reducing costs
Increasig revenue

Private property:
This principle guarantees that indivduals and companies have:
o
o

The right to own the resources necessary for production

The opportunity to accumulate weath.

Respect for individual autonomy:

A person is free to make economic decisions as a:
o
o
o

Producer
Owner
Consumer

The free market:

The price of gods and services is determined by:
o
o
o
o

The law of supply and demand.

The need to cover the cost of production
The market situation
Intervention b the State to guarantee access to basic
necessities.

COMPARING ECONOMIC SYSTEMS

An economic system is a system of production and Exchange of goods and
services as well as the allocation of resources in a society.
-

The market economy, or capitalism:

Economic agents quickly adapt to different circumstances.
The amount and variety of supply, products prices and product
quality are adjusted based only on demand from a segment of the
population.
This system can led to poverty,political corruption and an
underground economy, as inequality results when competition tkes
priority over cooperation.
It can also cause environmental problems, such as pollution, etc.,
without adequate regulation.

Planned economy, or communism:

The economy is centrally planned by the State.
This system is found in countries like Cuba and North Korea.
One of the disadvantages of this system is that consumer demand is
often greater than the supply, which results in supply problems.

Mixed systems:
In the most developed countries, the State intervenes to control
inequality.
The fundamental principles of the market economy are compatible
with Access to public services for the geneal population, helping to
ensure the wellbeing of the majority of the population.

5.

THE NEW ECONOMY

Todays economy has certain features which will continue to characterise its
development over the next few decades.
THE FINANCIAL ECONOMY
In the new economy, sales of financial products (such as insurance, mutual
funds, stocks, etc.)have increased and are higher than ever.
Financial capital is essential in funding the real economy, since many
companies rely on investment to carry out their economic activity.
Financial activities generate more pofits than those involved in the
production, distribution and consumption of goods and services. However,
they can also create serious imbalances that affect the entire economy.
The worlds 12 most important financial markets are: New York, London,
Tokyo, Sanghai, Hong Kong, Paris, Shenzhen, Toronto, Frankfurt, Bombay,
Sydney and Zrich.
RENEWABLE ENERGIES
Renewable energies are the only posible alternative to oil, as they will never
run out.
o
o
o

Hydroelectric energy: This is generated by the energy produced by

water falling from dams and rivers, and by tides.
Biomass: the production of certain fuels (etanol, methane gas, etc.)
by fermenting organic matter.
Geothermal energy: this uses the heat inside the Earth to produce
electricity.

Solar energy: solar radiation generates electricity using photovoltaic

solar panels. As electricity is only produced during the day, storage
systems have been invented to make it available for use, night or day.
Wind, or aeolic, energy: uses the wind to move large wind
turbines,producing electricity. Wind farms are also set up at sea.

THE SERVICE INDUSTRY

Employment in the service industry continues togrow around the world ,
while industrial employment now represents a smaller proportion of jobs.
With the fragmentation of production processes, large factories have given
way to smaller centres of production.Many tasks associated with
manufacuring a product are subcontracted to other, smaller companies,
which bring down costs by competing amongst themselves.
The result is that the number of small services companies (distribution,
promotion companies, design, etc.) is increasing at a local level, while
industrial activity is now generally concentrated in large companies.
INNOVATION AND CREATIVITY
To be more competitive, companies in the most developed countries focus
on creating innovative products whose new features set them apart in the
market and attract customers.
This srategy relies upon he creaivity and talent of millions of professionals.
In terms of economic geography, creative industries have certain
characteristics:
o
o
o

They give products added value.

They help create higher-quality jobs.
They tend to be geographically concentrated in certain spaces.