ECONOMIC ACTIVITY AND TYPES OF ECONOMIC ACTIVITIES
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 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.
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 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 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.