Ecop Unit 2 Production, Income, Spending .docx

Economic Principles 101\ Ch 3 - Production, Income, Spending Economic Principles 101 Ch 3 - Production, Income, Spending 1 [1.1. What to look for in this Chapter 5](%5Cl) [1.1.1. Total Production, -Income, -Spending = the 3 flows 5](%5Cl) [1.1.2. Role of Households, Firms 5](%5Cl) [1.1.3. Thing...

Economic Principles 101\ Ch 3 - Production, Income, Spending Economic Principles 101 Ch 3 - Production, Income, Spending 1 [1.1. What to look for in this Chapter 5](%5Cl) [1.1.1. Total Production, -Income, -Spending = the 3 flows 5](%5Cl) [1.1.2. Role of Households, Firms 5](%5Cl) [1.1.3. Things like C, I, X, Z and other cryptic clues 5](%5Cl) [1.1.4. Foreign sector, financial sector 5](%5Cl) [2. Production, Income, Spending 5](%5Cl) [2.1. Some basics first: 5](%5Cl) [2.1.1. The 3 central Qs 5](%5Cl) [2.2. Economics focuses on PRODUCTION, but the point is to consume products in the satisfying of wants of people 5](%5Cl) [2.2.1. \...so the sequence is Production, Income, Spending - but all happens at the same time 5](%5Cl) [2.2.2. (and we look at distribution later) 5](%5Cl) [2.3. Flows and Stocks - understand the difference: 5](%5Cl) [2.3.1. Importance of this: Production, Inc., Spending are flows. Now - Stock (or stock variable): \* Is measured at a point in time, like on 28 February at 17h00 like a \"\"stock take\"\"; how full the dam is. 5](%5Cl) [2.3.1.1.1. How many shoes and bags have we got? = stock at a point in time 6](%5Cl) [2.4. Flow (or flow variable): - here we find Prod., Inc., Spend 6](%5Cl) [2.4.1. A flow measured over a period; said to have a \'time dimension\' Income, profit, investment is calculated over a period. 6](%5Cl) [2.4.1.1.1. How many shoes and bags did we get to leave the shop? = flow, measured over a period 7](%5Cl) [2.4.1.1.2. prices are just ratios between two flows or stocks (it sets the one off against the other as a ratio) 7](%5Cl) [2.5. Stock or Flow exercise: 7](%5Cl) [2.5.1. Wealth - Profit - Capital - Assets - Investment - SAVINGS \* - Labour demand - Unemployment - 7](%5Cl) [2.5.1.1. Wealth - STOCK Profit - FLOW Capital - STOCK Assets - STOCK Investment - FLOW SAVINGS \* - FLOW Labour demand - FLOW Unemployment - STOCK \* savings being difference between income and spending within a period 8](%5Cl) [3. Factors of Production 8](%5Cl) [3.1. We identify 4 FoP\... 8](%5Cl) [3.2. Natural resources - a little more: \* a fixed supply, non-renewable, exhaustible even though new supplies may be found. \* quality and quantity are NB 9](%5Cl) [3.3. Labour - \"\"the exercise of human physical and mental effort\"\" \* quality more NB than quantity 9](%5Cl) [3.3.1. We see - Specialisation\> the tendency to concentrate on ACTIVITIES best suited for. Wider than division of labour. - Division of labour\>breaking up a process and allocating people to each part. NB: Benefits p43. See also \'best suited for\' 9](%5Cl) [3.4. Capital - produced to produce other goods: \* means current consumption sacrificed for future cons. \* limited life \> consumption of capital takes place \> the tangible things used to produce things 9](%5Cl) [3.5. Entrepreneurship - The \'stuff\' that combines other FoPs; driving force behind production 9](%5Cl) [3.6. BTW - technology is seen as part of capital and entrepreneurship 9](%5Cl) [3.7. Money? - does not produce G&S on its own Money is a medium of exchange 9](%5Cl) [3.8. Labour-intensive and capital-intensive techniques with own benefits and drawbacks 9](%5Cl) [4. Sources of Income: what does every FoP receive? 9](%5Cl) [4.1. Firstly - total income and total production are the 2 sides of the same thing 9](%5Cl) [4.2. Land \> rent Labour \> wages, salaries Capital \> ? Entrepreneurship \> ? 10](%5Cl) [5. Spending - who spends what? 10](%5Cl) [5.1. Keep in mind C + I + G + X- Z = total expenditure 10](%5Cl) [5.2. Households 10](%5Cl) [5.2.1. Define a household (p46) 10](%5Cl) [5.2.2. Its a basic decision-making unit it consumes is the cause of what is produced denoted by C FoP is mostly owned by H-holds (labour, capital) 10](%5Cl) [5.2.3. H-holds sell their FoP, use income to consume (spend) to satisfy wants 11](%5Cl) [5.2.4. We make some assumptions: \* consumers will try to maximise satisfaction 11](%5Cl) [5.3. Firms 11](%5Cl) [5.3.1. Define a firm 11](%5Cl) [5.3.1.1. Describe the following: \_- Individual - partnership - Company \* private \* public - close corporation - other, e.g. public corporation 11](%5Cl) [5.3.2. Converts FoP to produce \> decide the \'how\' a buyer in factor market and a seller in Goods market denoted by I for capital investments \> spending on capital goods 11](%5Cl) [5.3.3. Assumption - will maximise profit 11](%5Cl) [5.4. Government 11](%5Cl) [5.4.1. we do not expect them to be consistent (nss) has to provide framework for the economy buys G&S and provides things no-one else does \> we government with G for expenditure gets income through taxes and we use T note \'transfer pmts\"\" - allowances, grants made 11](%5Cl) [5.5. Foreign sector 12](%5Cl) [5.5.1. Define \'open economy\' balance of payments globalisation 12](%5Cl) [5.5.2. Exports = X = spend happens elsewhere and is income of SA exporters Imports = Z = spend happens in SA but is income of others 12](%5Cl) [5.6. Total spending: 12](%5Cl) [5.6.1. \'aggregate\' = all together, total. aggregate spending has 4 parts: C, I, G, X and Z together 12](%5Cl) [5.6.1.1. Total expenditure = C + I + G + X - Z (X-Z) 12](%5Cl) [6. Putting pictures to the story 12](%5Cl) [6.1. Interaction of spending, income and production 12](%5Cl) [6.2. Households and Firms, and what they do 12](%5Cl) [6.2.1.1.1. Add leakages and injections 13](%5Cl) [6.3. Add Government to the mix 14](%5Cl) [6.3.1. Also leakages and injections. Transfers do not increase production 14](%5Cl) [6.4.... and the foreign sector 16](%5Cl) [6.5. bring on financial institutions 18](%5Cl) [6.5.1. Although the don\'t add to production, they are links between households and firms 18](%5Cl) [7. Summary of concepts 20](%5Cl) [7.1. 3 basic flows in economy - 20](%5Cl) [7.1.1. production income spending 20](%5Cl) [7.2. Purpose of economic activity? 20](%5Cl) [7.2.1. Satisfy wants 20](%5Cl) [7.3. About labour - 20](%5Cl) [7.3.1. \* Specialisation characterises production \* Breaking up processes of production is division of labour \* Specialisation creates wealth and we need exchange/trade to happen 20](%5Cl) [7.4. Opportunity cost and advantage 21](%5Cl) [7.4.1. - Doing something has opportunity cost - Do that with the lowest Opp. costs - Read absolute and comparative advantage. We will see it in ch 16 21](%5Cl) [7.5. Appendix: Factor endowment 21](%5Cl) [7.5.1. It means what FoP does SA have? Read through and be able to answer question in LG 21](%5Cl) 1.  1. What to look for in this Chapter -------------------------------- 1. ### Total Production, -Income, -Spending = the 3 flows 2. ### Role of Households, Firms 3. ### Things like C, I, X, Z and other cryptic clues 4. ### Foreign sector, financial sector 2. Production, Income, Spending ============================ 2. Some basics first: ------------------ 5. ### The 3 central Qs 3. Economics focuses on PRODUCTION, but the point is to consume products in the satisfying of wants of people ---------------------------------------------------------------------------------------------------------- 6. ### \...so the sequence is Production, Income, Spending - but all happens at the same time 7. ### (and we look at distribution later) 4. Flows and Stocks - understand the difference: --------------------------------------------- 8. ### Importance of this: Production, Inc., Spending are flows. Now - Stock (or stock variable): \* Is measured at a point in time, like on 28 February at 17h00 like a \"\"stock take\"\"; how full the dam is. 1. ####  1. ##### How many shoes and bags have we got? = stock at a point in time 5. Flow (or flow variable): - here we find Prod., Inc., Spend ---------------------------------------------------------- 9. ### A flow measured over a period; said to have a \'time dimension\' Income, profit, investment is calculated over a period. 2. #### 2. ##### How many shoes and bags did we get to leave the shop? = flow, measured over a period 3. ##### prices are just ratios between two flows or stocks (it sets the one off against the other as a ratio) 6. Stock or Flow exercise: ----------------------- 10. ### Wealth - Profit - Capital - Assets - Investment - SAVINGS \* - Labour demand - Unemployment - 3. #### Wealth - STOCK Profit - FLOW Capital - STOCK Assets - STOCK Investment - FLOW SAVINGS \* - FLOW Labour demand - FLOW Unemployment - STOCK \* savings being difference between income and spending within a period 3. Factors of Production ===================== 7. We identify 4 FoP\... --------------------- 11. ###  8. Natural resources - a little more: \* a fixed supply, non-renewable, exhaustible even though new supplies may be found. \* quality and quantity are NB ------------------------------------------------------------------------------------------------------------------------------------------------------ 9. Labour - \"\"the exercise of human physical and mental effort\"\" \* quality more NB than quantity -------------------------------------------------------------------------------------------------- 12. ### We see - Specialisation\> the tendency to concentrate on ACTIVITIES best suited for. Wider than division of labour. - Division of labour\>breaking up a process and allocating people to each part. NB: Benefits p43. See also \'best suited for\' 10. Capital - produced to produce other goods: \* means current consumption sacrificed for future cons. \* limited life \> consumption of capital takes place \> the tangible things used to produce things ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 11. Entrepreneurship - The \'stuff\' that combines other FoPs; driving force behind production ------------------------------------------------------------------------------------------ 12. BTW - technology is seen as part of capital and entrepreneurship ---------------------------------------------------------------- 13. Money? - does not produce G&S on its own Money is a medium of exchange ---------------------------------------------------------------------- 14. Labour-intensive and capital-intensive techniques with own benefits and drawbacks --------------------------------------------------------------------------------- 4. Sources of Income: what does every FoP receive? =============================================== 15. Firstly - total income and total production are the 2 sides of the same thing ----------------------------------------------------------------------------- 16. Land \> rent Labour \> wages, salaries Capital \> ? Entrepreneurship \> ? ------------------------------------------------------------------------- 5. Spending - who spends what? =========================== 17. Keep in mind C + I + G + X- Z = total expenditure ------------------------------------------------- 18. Households ---------- 13. ### Define a household (p46) 14. ### Its a basic decision-making unit it consumes is the cause of what is produced denoted by C FoP is mostly owned by H-holds (labour, capital) 15. ### H-holds sell their FoP, use income to consume (spend) to satisfy wants 16. ### We make some assumptions: \* consumers will try to maximise satisfaction 19. Firms ----- 17. ### Define a firm 4. #### Describe the following: \_- Individual - partnership - Company \* private \* public - close corporation - other, e.g. public corporation 18. ### Converts FoP to produce \> decide the \'how\' a buyer in factor market and a seller in Goods market denoted by I for capital investments \> spending on capital goods 19. ### Assumption - will maximise profit 20. Government ---------- 20. ### we do not expect them to be consistent (nss) has to provide framework for the economy buys G&S and provides things no-one else does \> we government with G for expenditure gets income through taxes and we use T note \'transfer pmts\"\" - allowances, grants made 21. Foreign sector -------------- 21. ### Define \'open economy\' balance of payments globalisation 22. ### Exports = X = spend happens elsewhere and is income of SA exporters Imports = Z = spend happens in SA but is income of others 22. Total spending: --------------- 23. ### \'aggregate\' = all together, total. aggregate spending has 4 parts: C, I, G, X and Z together 5. #### Total expenditure = C + I + G + X - Z (X-Z) 6. Putting pictures to the story ============================= 23. Interaction of spending, income and production ---------------------------------------------- 24. ###  24. Households and Firms, and what they do -------------------------------------- 25. ### 6. ####  4. ##### Add leakages and injections 1. ###### 25. Add Government to the mix ------------------------- 26. ### Also leakages and injections. Transfers do not increase production 7. ####  5. ##### 2. ######  26.... and the foreign sector ---------------------------- 27. ### 8. ####  27. bring on financial institutions ------------------------------- 28. ### Although the don\'t add to production, they are links between households and firms 9. #### 6. #####  3. ###### The 4 sector economy 7. Summary of concepts =================== 28. 3 basic flows in economy - -------------------------- 29. ### production income spending 29. Purpose of economic activity? ----------------------------- 30. ### Satisfy wants 30. About labour - -------------- 31. ### \* Specialisation characterises production \* Breaking up processes of production is division of labour \* Specialisation creates wealth and we need exchange/trade to happen 31. Opportunity cost and advantage ------------------------------ 32. ### - Doing something has opportunity cost - Do that with the lowest Opp. costs - Read absolute and comparative advantage. We will see it in ch 16 32. Appendix: Factor endowment -------------------------- 33. ### It means what FoP does SA have? Read through and be able to answer question in LG