(a) Distinguish between economic activities and an economic system. [5 marks] (b) Explain the following terms: (i) production; [5 marks] (ii) distribution; ...

(a) Economic activities versus an economic system

Economic activities are the human efforts and actions directed at the production, distribution, exchange and consumption of goods and services in order to satisfy human wants (for example farming, trading, banking and manufacturing). An economic system, on the other hand, is the organised framework or method a society adopts to allocate its scarce resources and to decide what to produce, how to produce and for whom to produce (for example capitalism, socialism or a mixed economy). In short, economic activities are the individual actions people carry out, while an economic system is the overall arrangement within which those activities take place.

(b) Explanation of the terms

• (i) Production: the creation of goods and services to satisfy human wants. It adds utility (value) to resources and includes not only making goods but also providing services and moving goods closer to the consumer.
• (ii) Distribution: the process of moving and sharing produced goods and services from producers to final consumers through the chain of trade. (In another sense it also means the sharing of the national income among the factors of production as rent, wages, interest and profit.)
• (iii) Consumption: the using up of goods and services to satisfy human wants. It is the final aim of all economic activity, since goods are produced and distributed ultimately in order to be consumed.