Economic Activities and Barter System

Economic Activities

• Man is an economic animal, engaging in production, consumption (trade), and exchange (barter) to satisfy basic needs like food, clothing, and shelter.
• Direct satisfaction of wants occurs when individuals produce goods and services for personal consumption.
• Indirect satisfaction of wants occurs through trade, potentially in the form of barter or monetary exchange.

Trade: Barter

• Barter involves the exchange of goods or services without using money.
• Two conditions must be met for a barter transaction:
  • Double coincidence of wants: Each party must desire what the other party offers.
  • Agreement on the rate of exchange: Both parties must agree on the exchange ratio.

Disadvantages of Barter

• Limited range of wants that can be satisfied.
• Time-consuming search for suitable exchange partners.
• Delay in transaction completion.
• Difficulty in determining fair exchange value.
• Perishable goods cannot be stored for future exchange.
• Merchandise may be indivisible.

Money

• Money is anything generally accepted as a means of settling debts.
• It includes notes, coins, and bank deposits.

Characteristics of Money

• Acceptability: Widely accepted by everyone.
• Durability: Resistant to wear and tear.
• Divisibility: Can be divided into smaller units.
• Portability: Easily carried and moved.
• Homogeneity: Identical units have the same value.

Functions of Money

• Medium of exchange: Facilitates the exchange of goods and services.
• Unit of account: Measures the value of goods and services.
• Store of value: Can be saved and used for future transactions.
• Standard of deferred payment: Used to settle debts in the future.

Money and Capital Market

• The money market deals with short-term borrowing and lending.
• The capital market deals with long-term finance such as stocks, shares, and home loans.
• Key participants include commercial banks, merchant banks, and finance houses.

Insurance

• Insurance compensates for losses due to events like fire, hurricanes, or accidents.
• Assurance is compensation for losses that must happen, like death.
• Insurance is based on the principle of the fortunate assisting the unfortunate.
• A premium is the payment made to receive insurance coverage.
• An insurance policy is the agreement between the insurer and insured.

Principles of Insurance

• Indemnity: Insurer only compensates for actual loss.
• Insurable interest: Insurer must potentially suffer a loss.
• Utmost good faith: All relevant information must be disclosed.
• Contribution: Loss shared if insured by multiple insurers.
• Subrogation: Insurer can recover losses from liable parties.
• Cancellation: Policy can be canceled under specific provisions.
• Legal provision: Insurance contracts must conform to valid legal standards.

Types of Insurance

• Life assurance: For losses related to death.
• Non-life insurance: For unexpected events.
  • Marine insurance: For goods or people traveling by sea.
  • Fire insurance: Against losses from fire.
  • Consequential losses: For losses resulting from another event (e.g., loss of profit due to fire).
  • Whole-life insurance: Payable upon the insured's death.

Types of Insurance Documents

• Insurance certificate
• Bill of exchange
• Airline bill
• Debit note
• Legal tender
• Postal order
• Money order
• Telegraphic money order
• International money order/bank draft

Cheques

• Personal cheques: Drawn on current accounts.
• Manager cheques: Issued by banks for large amounts.
• Cross cheques: Can only be deposited, not cashed.
• Certified cheques: Bank-certified for validity.
• Travelers cheques: For use by travelers in foreign countries.
• Credit cards: Allow for payment without cash.
• Standing orders: Regular payments on specific dates.

Contract Essentials

• Offer and acceptance: One party offers, the other accepts.
• Consideration: Something of value exchanged by both parties
• Legality: Contract must be legal.
• Intention to create legal relations
• Certainty: Terms of agreement must be clear
• Capacity to contract: Parties must have the legal ability to enter into a contract.
• Genuineness: Parties must enter into the contract willingly and with fair understanding.

Types of Contracts

• Simple contracts: Can be oral, written or implied.
• Contracts by deed or specialty contracts: Must be under seal, to have legal value.
• Contracts of record: Imposed by the courts.

Termination of Contracts

• Performance: Completion of contractual duties.
• Breach: Failure to fulfill contractual obligations.
• Impossibility: An event makes performance impossible.
• Lapse of time: Expiration of a deadline.
• Mutual agreement: Both parties agree to cancel.

Production and Productivity

• Production: Creation or manufacturing of goods or services.
• Productivity: Efficiency in using resources to produce output.
• Factors affecting production supply: Growth, culture, migratory patterns, labor quality.
• Output: Good or services

Organization of Production

• Capital Intensive Production (CIP): Uses mainly machinery with a limited number of workers.
• Labour Intensive Production (LIP): Relies heavily on manual labor.

Factors of Production

• Land, Labour, Capital, Entrepreneurship

• Land: Natural resources.

• Labor: Human work.

• Capital: Money and physical assets.

• Entrepreneurship: Combines resources for profit.

Factors Influence Location of an Industry

• Raw material cost and availability
• Labour cost and availability.
• Infrastructure (e.g. transportation, utilities).
• Government regulations and policies.
• Competition and markets.

Economies and Diseconomies of Scale

• Economies of scale: Advantages of large firms due to larger operations.
  • Marketing savings, research and development savings, risk bearing savings.
• Diseconomies of scale: Disadvantages to large firms from size.
  • Market costs, research and development costs, and risk bearing costs.

Cottage Industries

• Small-scale, home-based production using simple tools and equipment.
• Examples: Tailoring, handicrafts, baking.
• Importance: Employment generation, use of local resources, contribution to national income.
• Linkages: Connections with other industries.

Management and Industrial Relations

• Management function: Planning, organizing, directing, controlling, coordinating, motivating, and delegating.
• Planning: Forecasting, decision making.
• Types of Planning: short term, medium term, long term planning.
• Organizing: Assigning duties to individuals and work groups.
• Directing: Guiding and motivating employees.
• Controlling: Monitoring performance and correcting deviations.
• Coordinating: Ensuring smooth operation in all areas of the business.
• Motivating: Inspiring employees to achieve objectives.
• Delegating: Giving authority to subordinates to perform tasks.
• Managerial Responsibilities: Shareholders, Customers, Government, Society, and Employees.

This quiz explores the concept of economic activities, focusing on production, consumption, and exchange. It delves into the barter system, its mechanisms, and the advantages and disadvantages associated with it. Test your understanding of how individuals satisfy their needs through different economic interactions.