Podcast
Questions and Answers
What do firms use as an input to produce goods and services?
What do firms use as an input to produce goods and services?
- Households
- Revenue
- Factors of production (correct)
- Goods and services
In a two-sector model, what do households sell to firms?
In a two-sector model, what do households sell to firms?
- Revenue
- Factors of production (correct)
- Labour only
- Goods and services
What do firms sell to households in a two-sector model?
What do firms sell to households in a two-sector model?
- Goods and services (correct)
- Revenue
- Factors of production
- Labour
What flows from households to firms in a two-sector model?
What flows from households to firms in a two-sector model?
What represents expenditure by firms to purchase factors of production?
What represents expenditure by firms to purchase factors of production?
In a three-sector model, which additional sector is involved in economic activities?
In a three-sector model, which additional sector is involved in economic activities?
What flows from firms to households in a two-sector model?
What flows from firms to households in a two-sector model?
What is represented by the flow of Birr in Figure 1.4?
What is represented by the flow of Birr in Figure 1.4?
What is the market demand function given by?
What is the market demand function given by?
What happens to the demand curve when there is a change in the price of a product?
What happens to the demand curve when there is a change in the price of a product?
Which of the following is NOT a determinant of demand?
Which of the following is NOT a determinant of demand?
What is the result of an increase in demand?
What is the result of an increase in demand?
Which of the following is an example of a demand shifter?
Which of the following is an example of a demand shifter?
What happens to the demand curve when there is a decrease in demand?
What happens to the demand curve when there is a decrease in demand?
What is the result of a change in any determinant of demand except the good's price?
What is the result of a change in any determinant of demand except the good's price?
What is the relationship between the price of a product and the quantity demanded?
What is the relationship between the price of a product and the quantity demanded?
What is derived by horizontally adding the quantity supplied of the product by all sellers at each price?
What is derived by horizontally adding the quantity supplied of the product by all sellers at each price?
Which of the following is NOT a determinant of supply?
Which of the following is NOT a determinant of supply?
What happens to the supply curve when there is an increase in the price of inputs?
What happens to the supply curve when there is an increase in the price of inputs?
What is the effect of technological advancement on the supply curve?
What is the effect of technological advancement on the supply curve?
What is the effect of a decrease in input price on the supply of a product?
What is the effect of a decrease in input price on the supply of a product?
Which of the following is an example of a determinant of supply that is related to natural factors?
Which of the following is an example of a determinant of supply that is related to natural factors?
What happens to the quantity supplied by seller 1 when the price per unit is $5?
What happens to the quantity supplied by seller 1 when the price per unit is $5?
What is the market supply when the price per unit is $4?
What is the market supply when the price per unit is $4?
What type of goods are those that satisfy the same type of demand and can be used in place of one another?
What type of goods are those that satisfy the same type of demand and can be used in place of one another?
Which of the following factors determines price elasticity of demand?
Which of the following factors determines price elasticity of demand?
What is the term for the degree of responsiveness of quantity demanded of a commodity to change in any of its determinants?
What is the term for the degree of responsiveness of quantity demanded of a commodity to change in any of its determinants?
Which type of goods is characterized by a decrease in demand with an increase in income?
Which type of goods is characterized by a decrease in demand with an increase in income?
What is the term for goods that are used jointly or together?
What is the term for goods that are used jointly or together?
What is the purpose of adding individual demand curves horizontally to get the market demand curve?
What is the purpose of adding individual demand curves horizontally to get the market demand curve?
What type of elasticity of demand measures the responsiveness of quantity demanded to a change in the price of a related good?
What type of elasticity of demand measures the responsiveness of quantity demanded to a change in the price of a related good?
Which of the following is NOT a type of elasticity of demand?
Which of the following is NOT a type of elasticity of demand?
What is the main role of a government in the economy?
What is the main role of a government in the economy?
What is the product market?
What is the product market?
What is the flow of economic resources and final goods and services represented by in the circular-flow diagram?
What is the flow of economic resources and final goods and services represented by in the circular-flow diagram?
What do households receive when they supply their resources to firms in the factor market?
What do households receive when they supply their resources to firms in the factor market?
What is the purpose of the circular-flow diagram?
What is the purpose of the circular-flow diagram?
What is the factor market?
What is the factor market?
What do business firms receive when they sell goods and services to households in the product market?
What do business firms receive when they sell goods and services to households in the product market?
What is represented by the anti-clockwise direction in the circular-flow diagram?
What is represented by the anti-clockwise direction in the circular-flow diagram?
Study Notes
Circular Flow of Income with Two-Sector Model
- The circular flow of income represents expenditure by firms to purchase factors of production, used as inputs to produce goods and services.
- The two-sector model consists of households and firms interacting in two markets: product market and factor market.
- In the product market, firms sell goods and services to households, and in the factor market, households sell factors of production to firms.
Circular Flow of Income with Three-Sector Model
- The three-sector model involves the government, which has legal and political power to control or influence households, firms, and markets.
- The government provides public goods and services to society.
- The three economic agents (households, firms, and government) interact in two markets: product market and factor market.
Demand
- The demand for a product is influenced by many factors, including:
- Price of the product
- Taste or preference of consumers
- Income of consumers
- Price of related goods
- Consumers' expectations of income and price
- Number of buyers in the market
- A change in any of these factors, except the price of the good, will change the demand, causing a shift in the demand curve.
- A change in the price of the good, while keeping other factors constant, will result in a movement along the same demand curve.
Determinants of Demand
- Price of the product
- Taste or preference of consumers
- Income of consumers
- Price of related goods
- Consumers' expectations of income and price
- Number of buyers in the market
Changes in Demand
- A change in demand will shift the demand curve from its original location.
- If buyers choose to purchase more at any price, the demand curve shifts rightward (an increase in demand).
- If buyers choose to purchase less at any price, the demand curve shifts leftward (a decrease in demand).
Market Supply
- Market supply is derived by horizontally adding the quantity supplied of the product by all sellers at each price.
- The supply of a particular product is determined by:
- Price of inputs (cost of inputs)
- Technology
- Prices of related goods
- Sellers' expectations of price of the product
- Taxes and subsidies
- Number of sellers in the market
- Weather, etc.
Determinants of Supply
- Price of inputs (cost of inputs)
- Technology
- Prices of related goods
- Sellers' expectations of price of the product
- Taxes and subsidies
- Number of sellers in the market
- Weather, etc.
Types of Goods
- Normal good: a good for which the demand increases with increases in income
- Inferior good: a good for which the demand tends to fall with an increase in the income of the consumer
- Substitute goods: goods that satisfy the same type of demand and can be used in place of one another
- Complementary goods: goods that are used jointly or together
- Giffen goods: goods whose demand falls with a fall in their prices
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Description
Understand the concept of expenditure by firms to purchase factors of production in a two-sector model, including revenue, markets, and goods and services.
