ECONOMIC ACTIVITY
AND
TYPES OF ECONOMIC ACTIVITIES
Economic activities are those activities of human beings, which
are meant for earning money or income. People are engaged in these activities
to earn for their livelihood. It means that, people are engaging into economic
activities in order to earn money to purchase goods and services, which can
satisfy their needs and necessities. These activities are also termed as
occupation of the people. In other words, economic activities are concerned
with production, distribution and exchange of goods and services to earn money
or income.
Types of economic activities
Economic activities or occupations of people are classified as
three. They are:
• Business
• Profession
• Employment
Business
Business is an economic activity meant for making profits. Business
can be defined as production or purchase of goods and services with an
intention to make profit. It involves investment of money with a view to earn
more in the form of profit. Risk and
continuity are its inherent features.
• Business is an economic activity meant for making profit.
• Transactions should be continuous and regular.
• Risk is the unavoidable element of the business.
• Modern business is focusing on consumer satisfaction.
• Manufacturing, mining, banking, insurance, transportation etc. are
examples of business.
Characteristics
of business
Dealing in goods
and services on regular basis
An economic activity is called business, when it is repeated on
a regular basis with a view to make profit. It means that, any single activity
of buying or selling goods or accepting or giving service cannot be called
business as it is not repeating. If you sell your bicycle and earn profit, it
doesn’t constitute a business. It is called business, when you stock a number
of bicycles and make series of transactions and make profit through these
transactions.
Profit
motive
An activity in the nature of production, purchase or
distribution is called business only when there is an intention to make profit.
A business without an intention to make profit is meaningless. Profit is considered
the return to the businessman for bearing the risk and it is required for
expansion, modernisation and diversification of business. Moreover, the success
or failure of business is measured in terms of profits.
Uncertainty
and business risk
One of the inherent features of business is risk. Risk is the
possibility of occurring loss. It may be due to various reasons such as natural
calamities, customer attitudes, changes in technology, government policy etc.
Business always expects an uncertain future and profit is the reward to the
businessman for successfully overtaking such risks.
Exchange
and distribution of goods and services
Business involves transfer of goods or services. This transfer
or exchange takes place on the basis of monetary value. The goods may be of producers’
goods or consumers’ goods.
Producers’ goods are industrial goods or capital goods which are
mainly used by industries in their factories. eg. Machineries, equipment and
other industrial inputs. Consumers’ goods are consumable goods which are meant
for ultimate consumption. eg. vegetables, readymade dresses, chappals etc.
Services are intangible goods which cannot be stored for future
consumption. eg. transportation, education, banking, insurance etc.
Profession
Profession is an occupation that can be performed with only
specialised knowledge and skill, which are used for the benefit of society at
large. It is the rendering of expert personal service like that of doctors,
lawyers, engineers, chartered accountants etc.
The professionals are required to perform expert personal
service and therefore need to acquire the prescribed minimum academic
qualification. Remuneration to a professional service is called fee.
Features
of profession
• Profession is an economic activity and therefore an occupation.
• It involves rendering of specialised expert personal service.
• It requires specialised knowledge and skill. Each professional must acquire prescribed
minimum academic qualification, training and experience. eg. MBBS for doctors,
LLB for lawyers, ACA for chartered accountants etc.
• Professional should be the member of the concerned professional
association. eg. Chartered accountants should be the member of ICAI, Lawyers
must be the member of Bar Council, Doctors should be the members of Medical
Association etc.
• Professional should follow the code of conduct (rules and
regulations to be kept in service) stipulated
by the association.
• Remuneration to the professional service is called fee.
Employment
Employment is an occupation where one person is working under
another, on a regular basis as per the agreed terms and conditions, and also by
accepting salary or wage as remuneration in return for the service. The person
who is performing the service is called employee and the person who provides
the employment is called employer. The agreement between the employer and
employee which explains the terms and conditions of employment is called service
contract.
Features
of employment
· In
employment, one person undertakes works for another. It means that one person
is working under another according to his instructions and directions.
· The
person who undertakes work is called employee and the person who provides work
is called employer.
· Employee
renders his service for the employer on a regular basis.
· There
must be an agreement between employer and employee specifying the rules, terms
and conditions of employment, and it is called service contract.
· Remuneration
to the services of employee is called salary or wages.