This document provides an overview of basic economic activities and the four factors of production. It discusses the main economic activities of production, distribution, exchange, and consumption. It also outlines the four factors of production - capital, entrepreneurship, land, and labor - and the corresponding payments for each which are interest, profits, rent, and salary, respectively. The document provides examples and definitions for different types of goods and methods of distribution and exchange.

1. Agricultural Economics and
Marketing
AGSC 5
Noriel B, Bergonio, MBA
Dept. of Agricultural Entrepreneurship, CAFENR
Cavite State University

2. Lecture 3: Basic Economic Activities
I. Economic activities
1. production activity
2. distribution activity
3. exchange
4. consumption
II.The Four Factors of Production and their Corresponding Payments
1. capital
2. entrepreleurship
3. land
4. labor

3. I. Economic Activities
Production activity. This directly addresses the basic
economic questions of what to produce, how many or
how much to produce, and how to produce products.
When products have been produced, they may be
classified into several types as presented in the next
table:

4. TYPE OF GOODS DEFINITION EXAMPLES
Basic goods Primary and necessary
items needed for man to
survive
Food, clothing, shelter
Luxury goods Items that are desired by
man to have a more
comfortable way of life, but
are not necessary to his
survival, often expensive
and not easy to acquire
Mansions, high-end cars,
jewelry
Public goods Goods that are provided for
by the government for the
benefit of its constituents
Highways, bridges,
waiting sheds
Free goods Goods are normally
abundant and do not need
to be paid for
Spring water, oxygen,
rocks
Economic goods Goods that are normally
produced or are scarce,
requiring a certain payment
for their consumption
Processed food, mineral
water, branded clothes

5. Distribution activity. The second
activity in economics is known as
Distribution. It directly addresses the
question “For whom to produce'?” It
focuses on how the products will
reach the ultimate consumer. Non-
conventional methods of transporting
products are still the cheapest but
also the slowest. These include
pushcarts, horses’ kalesa and the like.
Conventional methods of transport,
though a lot expensive also happen to
be much faster. These include buses
and cargo trucks, ships, air cargo,
pipelines (for oil, water and gas), and
via the telephone or Internet.

6. Exchange. It is that third economic activity
designed to facilitate the transfer of the good or
service from the producer to the consumer, and
the corresponding payment from the consumer to
the producer. An exchange only occurs when
both parties agree, or when the consumer agrees
with the price of the producer.
Parties who agree to accept other goods as
payment in exchange for their goods being sold
are said to be involved in barter. Import and
export transactions when done between two
countries (bilaterally) is a very good example of
modern-day barter.

7. Standard medium of exchange is used to facilitate
transactions. Money is usually used in these cases,
but it should be generally acceptable in a particular
territory. These acceptable forms or denominations
of money are collectively called legal tenders or
legal offers for payment.
In the Philippines, only Philippine coins and bills duly
issued by the Bangko Sentral ng Pilipinas (BSP) are
generally acceptable. This would mean that normally,
producers do not have a right to refuse payment when
made in the form of Philippine money called the
Philippine Peso (Php), to properly distinguish it from the
Mexican and Argentinian Peso.

8. Consumption. The final economic activity is known as consumption,
where the ultimate consumer now gets to enjoy the good or the
service, which he or she has bought. The satisfaction derived by a
consumer from the consumption of a good or service is generally called
utility. Normally, the higher the utility of a good, the higher the
satisfaction a consumer gets.

9. II. The Four Factors of Production and their Corresponding Payments
The four basic factors used in any production process is the so-called
“CELL” of production, which stands for Capital, Entrepreneurship, Land and
Labor.

10. Capital pertains to all man-made resources used in the
production process. This includes machines, buildings,
and equipment. The payment for the use of capital is
known as interests or interest payments.
Entrepreneurship or entrepreneurial ability refers to
the skills the owner or producer applies to combine all
the factors of production to produce goods and
services. The payment for entrepreneurial ability is
the share of the entrepreneur in the enterprise known
as profits.

11. Land encompasses not only the real estate property being
used in the production process, but also all natural
elements that come from the land - whether grown or
mined. Land resources are also considered to be God-
given resources. All raw materials, especially those found
in their natural states, are considered as part of land.
Payment for the use of land and its resources is called
rent or rent payments.

12. Labor is needed in the production process to properly use the
capital and the land, under the supervision or instruction of
the entrepreneur to produce goods and services. Labor
encompasses all manpower requirements of the enterprise, the
payment for which is called salary (if the person is employed).

13. THANK YOU!THANK YOU!