Chapter 2 Flashcards
Microeconomics
What are economic decision makers?
Economic decision makers within the economic system make decisions concerning the application of scarce resources and the use of the resulting output, with the view of improving their respective levels of wellbeing
What are households decisions as role players in the economy?
Households may consist of a single person, a family or a group of people who live together, depend on common income and within the limits of that income exercise choices with a view to meeting their economic objective. Their function is to supply primary production factors and to use the income received from the supply of the production factors to purchase final goods and services
What are business enterprises decisions as role players in the economy?
Business enterprises are firms and industries that will combine the factors of production effectively to produce goods and services. Their economic decision makers whose purpose is to earn income and to make profit by supplying goods and services for which there exists a demand in the economy.
What are governments decisions as role players in the economy?
Governments are there to create an environment where the economy can operate freely and fairly. They have economic activities in the public sector which are extensive. Their functions consist of providing the legal framework and the services need for a market economy to operate effectively, to ensure fair competition, to take care of market failures and to redistribute income through transfer payments, market intervention and taxation
What are foreign sectors decisions as role players in the economy?
Foreign sectors consist of a large number of individual states, governments, consumers and business enterprises which have interaction with other countries. It can have welfare benefits. This sector is sensitive to global changes and events.
What does society choose due to income disparity?
Society chooses to redistribute a total part of their income through a variety of government policies and programmes. They are transfer payments, market interventions and taxation. Redistribution involves both benefits and costs.
What are the benefits and cost of income redistribution?
Redistribution benefits are greater fairness or economic justice. While the redistribution costs are reduced, incentives to work, save, invest and produce which could lead to a loss of total output.
What is externality market failure?
Externality market failure (externalities) is when the market system produces the wrong amounts of certain goods and services
What is public goods market failure?
Public goods market failure is when market systems fail to allocate any resources to the production of certain goods and services whose output is economically justified
What are transfer payments?
Transfer payments are payments where there is no services rendered e.g. pension, disability payment
What is the foreign sector?
Foreign sectors are part of the open economy as the country is extensively involved in international trade.
Who are the role players in the economy who make the decisions?
- Households
- Business enterprises
- Governments
- Foreign sectors
What are the three markets in the economy?
- Resource market
- Product market
- Financial market
What is a product market?
The place where goods and services produced by businesses who combined resources are bought and sold. Households use their limited income to buy and sell business. The monetary flow of consumer spending yields sales revenues for businesses.
What is a financial market?
Financial markets take care of surplus funds in the economy. Savings in all forms are pooled together to create a source of funds for investment purposes.
What is the resource market?
The place where resources are bought and sold. Households sell and businesses buy. The costs to business are wage, rent, interest and profit. Households own all economic resources directly as workers or entrepreneurs and indirectly through ownership of business
What does circular flow diagram display?
A circular flow diagram shows how the role players are connected with each other by the flow of real as well as financial objects. There is a continuous flow of real objects in one direction and a continuous flow of financial objects in the opposite direction. The direction of the flow of the money involved will determine whether it is inflow or outflow
What does a circular flow two sector model show?
-Production factors flow from households to firms through the resource market and goods and services flow from firms to households through the product market.
-Opposite these flows are real flows are monetary flows. In a monetary circular flow, households receive income from firms (their costs) through the resource market and the firms receive revenue from households (their expenditure) through the product market.