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Chapter 1: Basic Economic Process

Monica Sharlene C. Calupe

Angelica Pauline A. Cruz

This chapter discusses the four major processes that
cover the material activities of the people and
industries within a society. It explains how efforts of
people and machine are related and how it is
necessary to produce goods that will be useful. Basic
economic processes chapter introduces different
types of industries and different classes of
manufactured goods or products. It also enumerates
some examples of raw materials and services.

Man naturally is a selfish being. We all have our
certain needs, wants and preferences. In order to
attain our basic needs and even the things and
services we want we tend to pay for it or buy it. But
have you ever wondered how, where and what does
every single thing you purchase are made of? Or do
you ever had chance or did have a chance to build a
business? Did it ever occur to you why would you
build that certain business and where would you get
raw materials?
Within a society it is necessary that there be a
process to organize and coordinate choices regarding
the production, distribution and consumption of goods
and services (1). This arises because raw materials or
resources within any country are finite and as well as
there will always be some technological constraints
(3). One of the processes involved in a society is the
basic economic process which summarizes the flow
or exchange of goods and services. This process is
applicable to both local and international exchange of
products and service.

Basic economic process encompasses the processes
that provide goods from raw materials and semi-
manufactured goods. It has four different processes.
Within each process, different industries are involved
such industries are extractive or primary raw
materials industries, manufacturing industries,
distribution industries and service industries. Different
processes have different importance, depending on
the nature of ones business through which industry
will it be classified.
Significance of the chapter
Basic economic process is important because it
completely explains how different enterprises and
activities are interrelated and important to one
another. It shows and explains how raw materials are
processed to produce semi manufactured goods and
finished goods. This chapter provides information how
different economic activities are mutually dependent
parts of the larger whole, the national economy. And
eventually national economic activities will involve
international exchange of goods and services.
Understanding the basic economic processes will
help us understand the essence of economic life. The
essence of economic life states that people making
goods and performing services while in turn they use
the products and benefit by the services of others.
Knowing and fully understanding such concepts will
aid us determine industries that should and should not
go hand and hand. Some industries will be helpful to
another and some will not affect another enterprise.
Eventually through these concepts providing quality
product efficiently will be possible. Basic economic
process will assist us too in avoiding or solving
problems related to the process of producing quality
goods and different goods from one raw material.

Objectives of the Chapter
The purpose of this chapter is for the reader to:
Understand and enumerate the four major
economic processes.
Understand the role of the people (services)
and machines in the different processes.
Describe and enumerate kinds of industries,
raw materials and services.
Understand the essence of economic life.
Describe the interrelatedness and how
dependent are the four fields of economic
Know the importance of understanding the
basic economic processes.

Main Discussion
Figure 1 shows how people are making goods and
performing services while in turn they use the
products and benefits from the service of others. This
illustrates the cycle within any society in terms of
exchange of goods and services. This is the essence
of economic life.

Figure 1. Illustration of Basic Economic Process
Four Major Processes of Material Activities of People
in Any Economic System
1. Process that provides the raw materials
needed in the modern economy.
This involves extractive or primary raw
material industries. This process also
encompasses the creation, collection, or
extraction of raw material for the production of
goods and services, especially directly from
the natural environment (4). In short, its main
function is to provide material for other
producers and consumers (2).

Extractive or primary raw material industries
include enterprises engaged in:

Examples of raw materials:
Minerals and Fuels
Grains and other vegetable and
animal food products
Wool, cotton, flax, and other fibers
Stone, sand, and clay
Leather, hides, and skin

2. Process by which raw materials are
manufactured or converted into different
forms (2).
Manufacturing industries are responsible in
this process. Its basic function is to transform
materials or parts into products of greater
usefulness to others who will purchase these
products. Many enterprises carry on the
manufacturing process.

Products produce in a manufacturing industry
fall into two general class namely Semi
manufacture and Finished goods.
I. Semi-manufacture are good partly
fabricated passing from producers to
producers for further processing
II. Finished goods are goods to be sold
to the ultimate consumers
An example of a raw material is cotton, which
is harvested from plants. Cotton can be
processed into rope. A rope can also be
considered as a raw material. Then, the rope
can be woven into cloth, which is a semi-
finished material. Cutting and sewing the
fabric turns it into a garment, which is a
finished product (5).
3. Process by which raw materials and
manufactured goods are passed from
producer and from producer to consumers.
This process is conducted by distribution
industries. They facilitate the passage of
goods from the crude raw materials through
many stages of processing and manufacture
to the ultimate consumers. Their operations
are consisted of buying and selling as
middlemen, storing, sorting, grading,
packaging, and moving goods about to places
where they are most needed (2).

4. Process by which people renders variety of
services at every point in the economic
Service industries exhibit this process like
domestic, financial, professional, mechanical,
general public and government services.

In one way or another some of the processes may
overlap. For example company QQQQ is an
extractive enterprise, company RRRR is a
manufacturing enterprise, company SSSS is a
distributive enterprise and company TTTT is a service
providing company. Company QQQQ will provide raw
materials for company RRRR. Company SSSS will
serve as a middleman between company RRRR and
TTTT. Company TTTT is the one responsible of
distributing the finished product to the ultimate
The need of organizing economic life spring from the
fact that mans wants are unlimited, but means of
satisfying those wants are scarce (2).
Figure 2 exhibits how goods and services flow from
individual to the society it belongs,

Figure 2. Illustration of how goods and services flow from an entity.
The major processes of economic activities are
mutually dependent parts of the larger whole, the
national economy. And because the nation is not a
self-sufficient economic unit, it carries this cooperative
cycle beyond its border taking part with other nations
in the international exchange of goods and services.

Summary and Conclusions
The four basic major processes of manufacturing raw
materials are illustrated by extractive industries,
manufacturing industries, distribution industries and
service industries. Each industry differs from another
and within each industry people and machines have
different functions and roles. But these different
industries may complement each other in one way or
another. Thus this major processes summarizes how
people and machine works within a certain industry.
There is a need for man to understand these
processes in able to know the nature of his business
and as well as the nature and role of different
enterprises he might encounter within transactions.
Each industry is important for every industry and to
the society itself. Every society is part of a larger
community. Therefore every industry is significant in a
(1) Encyclopedia Britannica. (1996). Retrieved June
19, 2013 from:
(2) Riggs, J. L. et. al., 1980, Industrial Organization
and Management, 6
ed., McGraw-Hill, Inc., NY.
(3) Reynolds, L. (n.d.). An Introduction to the History
of Economics. Retrieved June 19, 2013 from:
(4) Raw Material Production. (1996). Retrieved June
20, 2013 from:
(5) Material. (n.d.). Retrieved June 20, 2013 from: