Economics investigates human behaviour and its consequences on a world with scarce resources. Economics:
Deals with practical problems like inflation.
The need to understand economics to the economic problem arises because the supply of the resources is limited in relation to the demand or wants of individuals. Since the wants of society are unlimited in relation to the supply of resources, the problem of scarcity arises The more scarce the item the more money.
Therefore if something is to be called scare in the economic sense, two conditions must be met * People must want the item
* The amount of it must be limited
1. Because our resources are limited.
2. Because each country has only a limited resources
3. What goods and services to produce, how to produce the goods and services, which gets the goods and services. 4. There is only a certain amount of recourse that a country can produce.
Throughout history, different types of economics system have used different approaches to solving the economic problem. Some economic systems are closely controlled; others operate with more individual freedom. Market: the price mechanism allocates resources according to consumer preference. Individuals make key economic decisions based on self-interest, profit, etc. Other countries known as a market economy include……………… * US
* What to produce and how much is determined by the price mechanism. * How to produce is determined by the profit motive as produces will attempt to limit costs *
* To whom to distribute is determent by incomes
* The government still plays a role in running the economy * Larger businesses may dominate the marketplace
9. A. To produce more of any one product, some resources must be shifted away from the production of another product when a country’s human and material resources are being fully and efficiently used. This illustrates the problem of economizing, always faced when resources are limited. B.
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* An economy can only satisfy one want
* Capital goods consist in the production of other goods
* In many economies the government uses taxes and provides free health care and education * Circular income
* Household sector – provide resources and buy goods and services * Firm Sector – Distributes goods and services, sell everything to households and buy resources * Income = expenditure
* Output = expenditure
* Income = output = expenditure
* Financial sector- banks, building, companies
Circular Flow of Income Model
* Represents five sectors: household, firms, finance, government and overseas * A closed economy is one where there is no overseas sector and so no international trade * An open economy has an overseas sector and international trade and money flows in * The circular flow model demonstrates
* How the foreign sector influences the level of domestic business production Eg it assumes producer export to overseas markets and consumers demand imports from the overseas sector * The fifth sector model is an “open economy model” because it shows global impacts on the domestic economy * The model also helps economist determine the level of total national production which is called gross domestic product (GDP) * GDP is a measure of the market value of goods and services produced in an economy in a given period (usually one year) after deducting the cost of goods and services used in their production 7.
1. The five sectors are the household sector, firms sector, financial sector, government sector, overseas sector 2. Leakage means coming out of the economic system and injection money means that the money is being returned, put back in the economic system 3. There will be no money in the economic system, and unemployment will rise, because the...
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