Introduction to Business and Commercial Knowledge

What are Economic Activities?

We all have heard the saying “All work and no play makes Jack a dull boy”. But how do we categorize what is work and what is play? In economics, we categorize all human activities into two broad categories – economic activities and non-economic activities. Let us take a look at the meaning and some examples of economic activities.

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What are Economic Activities?

All humans perform a variety of activities on any given day. There is work that we do every day and other activities we do for personal fulfilment and joy. So as a general rule, we can say that all the activities we do to earn a living are economic activities. All other activities are non-economic activities.

One way to identify economic activities is that they are driven by rationality and logic. The reason for performing such activities is for our own self-interest. We will gauge what returns we get in exchange for performing such activities. Non-economic activities, on the other hand, are done for emotional reasons or concern for another person. So all religious, charitable, social, patriotic, recreational activities are non-economic activities.

But it is not always easy to determine the nature of an activity. If you enjoy painting as a hobby it is a non-economic activity. However, if you sell your paintings then it becomes an economic activity. So the motive behind doing any activity is a strong indicator of its nature.

economic activities

Characteristics of Economic Activities

We will now see some distinguishing characteristics of features of economic activities that will help us determine and identify economic activities from non-economic activities.

1] Income Generation

All economic activities will generate some form of income. It is not compulsory that such income is in monetary terms, it can be in different kinds. So, if the activity is a form of livelihood for the person, and it generates him any form of income then it is an economic activity. For example, a labourer who toils the land and gets paid in crops, this is an economic activity.

So when you employ any one of the factors of production (land, capital, labour, entrepreneur) and in return earn an income in form of wages, salary, rent, royalty, profit, etc, we will classify such an activity as an economic activity. For example, rent earned on a property.

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2] Productive in Nature

If the activity is a means of livelihood it means it implies that there was some element of the production process involved. So an economic activity must be productive in nature, it must involve some aspect of the production of goods and/or services.

Let us see some examples. A worker in a factory is producing goods, a software engineer is providing services, a teacher also produces services. Similarly, farming is an economic activity as again it helps in production.

One point to note is that even if the production is for self-consumption it is still a productive activity and so it is an economic activity. Because it will still add to the overall supply of the market. Also, all other activities like warehousing, transporting, etc which help bring the products to the market are also productive economic activities.

3] Consumption is also an Economic Activity

Consumption is the demand side of the market. It is what generates the production and the supply of goods and services. The consumption of goods promotes competition and introduction of better products in the market. So consumption encourages production activities, so it is in itself an economic activity.

4] Savings, Investment, Wealth

Savings is the income that is not spent. Such savings are invested in a variety of instruments such as savings account, term deposits, the stock market, mutual funds, real estate, gold, etc. So such investment turns to wealth. Then the private and public companies borrow such monies to invest in their business and further economic activities in the country.

Solved Example on Economic Activity

Q: _____ is the economic activity that comprises the whole spectrum of economic activities from production to distribution to trading of goods and services

  1. Industry
  2. Economy
  3. Business
  4. None of the above

Ans: The correct answer is C. Business is the sum total of all economic activities related to the production and selling of goods and services. Industry, trade, and commerce are all sub-classifications of business.

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