Economic Cycle Flashcards
Another name for economic cycle
Circular flow of money
What is the Basic Economic Problem?
Also known as the problem of scarcity.
There are certain needs that are fulfilled for free, but the vast majority of needs and all wants cost money and people therefor need to come up with a plan to acquire money.
The Economic Cycle
The plan for people to acquire money refers to the economic cycle; a two way movement where goods/services are exchanged for money so that needs and wants can be satisfied.
How do goods and services flow in the economic cycle?
- Households possess the factors of production which the sell to businesses through the Market for the Factors of Productions.
- Businesses buy the factors of production to manufacture them into goods and services.
- Businesses then sell those goods and services back to households through the Market for goods and services.
- Households buy the goods and services, which in turn provide them with the factors of production to restart the entire flow.
How does money flow in the economic cycle?
- Households buy goods and services from the product market as an expense.
- Businesses sell their goods and services to the product market in order to receive an income/ profit.
- Businesses first buy the factors of production from the resource market as an expense to then manufacture them.
- The factors of production are sold to the resource market by the households in order to receive an income.
Households:
— possess all factors of production
— the money earned by households when the sell their factors of production is used to satisfy their own needs and wants.
Needs vs Wants
Refers to the necessities that people require in order to survive, for example food and clothing, while wants are goods and/o services that are not essential for survival, but that people like to have.
Is money a needs in society?
Some people believe that money is a need, but this is not true as long before money was used as a means of payments, people survived by providing for their own needs and bartered when necessary.
Characteristics of needs:
— unlimited but the money need to satisfy them is limited.
— needs have a limited intensity.
— different people have different needs: a persons needs are subject to factors such as (amongst others) daily activities. Needs differ depending on the person’s gender, age and career.
— needs are often determined by a person’s geographical location and many change if a moves and lives elsewhere.
— needs change over time.
— sometimes needs add complementary; one need gives rise to the next need.
— some needs may become a habit.
Businesses/ Undertakings/ Firms:
— businesses but the factors of production and manufacture goods and/or services that they will sell at a profit to households or to other businesses.
— privately owned business trade in the private sector.
— different types of goods and services a business can sell.
Types of goods and services:
- Convenience goods: consumers are concerned with the brand since they are important to purchase.
- Select goods: usually bought once a comparison has been regard to price, quality and the brand name.
- Specialty goods: consumers take time to make a decision in regard to these products. Consumers also tend to be brand loyal.
- Intangible services.
The government:
— receive tax from households and businesses and use the revenue to create an infrastructure in order to promote economic activities in the country
— this kind of transaction, involving the government in the economy, takes place in the public sector.
What is infrastructure also known as?
Collective goods, such as public schools, roads, public hospitals, safety services, airports, sewage systems, etc.
The foreign sector:
Is only involved in an open market where goods and services are imported from other countries (purchased) and exported (sold) to other countries.
What are the possible reason for international trade?
- Improving transport and communication
- Seeking specialized expertise for a cheaper price
- Importing goods when the climate is suitable for some.
- Purchasing luxury items from other countries
- Importing a range of natural resources
- International tourism.
