Transcript Producers

The flow of goods and services in
a market economy
FLOW OF GOODS AND SERVICES IN THE ECONOMY
AN OPEN ECONOMY
FA CTOR MARKET
I
S
D
P
S
B2
B1
Q
FIRMS
T
HOUSEHOLDS
FINANCIAL MARKETS
IM
D
A2
S
A1
P
G
Q
I
PRODUCT MARKET
X
F
I
N
A
N
C
Factors Market
D
S
I
P
Q
S
CONSUMERS
PRODUCERS
T
Product Market
D
S
IM
P
Q
X
G
The players
THE ECONOMY CAN BE DIVIDED BETWEEN
CONSUMERS AND PRODUCERS
1. CONSUMERS OR HOUSEHOLDS
•THIS IS THE SECTOR OF THE ECONOMY THAT PURCHASES
FINISHED GOODS AND SERVICES AND PROVIDE FACTORS OF
PRODUCTION TO THE ECONOMY
2. PRODUCERS OR FIRMS
•THIS IS THE SECTOR OF THE ECONOMY THAT PROVIDES FINISHED
GOODS AND SERVICES AND PURCHASES FACTORS OF
PRODUCTION TO THE ECONOMY
PRODUCERS
CONSUMERS
The markets
IN CANADA FOR THE MOST PART THE MARKET PLACE DETERMINES
THE PRICE AND THE QUANTITY OF GOODS AND SERVICES
PRODUCED…
AS WELL AS THE PRICE AND QUANTITY OF FACTORS OF
PRODUCTION
THE FREE INTERACTION BETWEEN THE SECTOR OF THE
ECONOMY THAT DEMANDS AND THE SECTOR OF THE
ECONOMY THAT SUPPLIES CREATES MARKET PRICES THAT
SATISFIES BOTH DEMAND AND SUPPLY
THERE ARE TWO MARKETS:
THE MARKET FOR THE FACTORS OF PRODUCTION AN DTHE
MARKET FOR GOODS AND SERVICES
Factors Market
D
S
P
Q
CONSUMERS
PRODUCERS
Product Market
D
S
P
Q
The flows
Factors Market
D
B2
S
B1
P
Q
CONSUMERS
PRODUCERS
Product Market
D
S
P
A1
A2
Q
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A1 and A2 flows are called GDP Expenditures
based flows
Consumers demand and purchase final
goods and services from Producers on an
open market. Their expenditures.
They provide money and receive final goods
The amount of goods and services that they
can purchase creates their standard of living
Producers supply and sell final goods and
services to Consumers on an open market.
They receive money and provide goods and
services
The money they receive becomes their
revenues
Factors Market
D
B2
S
B1
P
Q
CONSUMERS
PRODUCERS
Product Market
D
S
P
A1
A2
Q
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B1 and B2 flows are called GDP Income based flows
Firms (Producers) demand and purchase Factors of
Production goods and services from Households.(land,
labour, capital, entre.)
They provide money and receive the factors of
production needed to produce goods & services
The amount and the price of factors of production will
determine the final price of the item and the number of
items produced
Households (Consumers ) supply and sell the factors of
production needed to produce items.
They receive money in return, which becomes their
income.
The leakages
THERE ARE THREE CATEGORIES OF LEAKAGES
IMPORTS: MONEY THAT GOES OUT OF THE ECONOMY
AND INTO THE ECONOMY OF ANOTHER COUNTRY
SAVINGS: MONEY FROM INCOME THAT IS NOT SPENT BUT
SAVED FOR FUTURE SPENDING
TAXES: MONEY FROM INCOME THAT IS TAKEN AWAY BY
THE GOVERNMENT TO BE USED HOWEVER THEY SEE FIT
IMPORTS:MONEY
MONEYFROM
THATINCOME
GOES OUT
SAVINGS:
THAT
TAXES: MONEY FROM
Factors Market INCOME THAT IS
ISOF
NOT
SPENT
BUT
D SAVED
S
THE ECONOMY AND
INTO
TAKEN
AWAYSPENDING
BYP THE GOVERNMENT
FOR
FUTURE
THE ECONOMY OF QANOTHER COUNTRY
TO BE USED HOWEVER THEY SEE FIT S
CONSUMERS
PRODUCERS
T
Product Market
D
S
P
Q
IM
The injections
THERE ARE THREE CATEGORIES OF INJECTIONS
GOVERNMENT SPENDING: GOVERNMENT
EXPENDITURES, MONEY PUT BACK INTO THE ECONOMY (MOST OF
IT COMES FROM TAXES)
EXPORTS: MONEY PUT INTO THE CANADIAN ECONOMY BY
FOREIGN CONSUMERS
INVESTMENTS: MONEY PUT INTO THE ECONOMY BY THE
BUSINESS COMMUNITY (MOST OF IT COMES FROM CONSUMER
SAVINGS)
GOVERNMENT
EXPORTS:
MONEY
SPENDING:
PUT INTO
GOVERNMENT
THE
INVESTMENTS:
MONEY
PUT
INTO THE
Factors Market
DMONEY
EXPENDITURES,
CANADIAN
ECONOMY
BY
PUT
FOREIGN
BACK INTO
ECONOMY BY THE SBUSINESS
P
THE
CONSUMERS
ECONOMY
(MOST
OF
IT
COMES
COMMUNITY
(MOST
OF
IT
COMES
Q
FROM
FROMTAXES)
CONSUMER SAVINGS)
CONSUMERS
PRODUCERS
Product Market
D
S
P
Q
X
I
G
The whole model
Factors Market
D
I
S
P
Q
S
CONSUMERS
PRODUCERS
T
Product Market
D
S
IM
P
Q
X
G
The REAL flows and NOMINAL
flows
THE REAL FLOW:
THIS IS THE ACTUAL FLOW OF
GOODS AND SERVICES
THROUGHOUT THE
ECONOMY
EXAMPLE: 1 MILLION CARS
100 HOURS OF ACCOUNTING
SERVICES
The REAL flows and NOMINAL
flows
THE REAL FLOW:
SINCE THESE ARE THE ACTUAL
GOODS AND SERVICES THEY
OFFER A MORE ACCURATE
COUNT OF THE PRODUCTION OF
THE ECONOMY
Factors Market
D
S
P
Q
CONSUMERS
PRODUCERS
Product Market
D
S
P
Q
The REAL flows and NOMINAL flows
THE NOMINAL FLOW:
THIS IS THE DOLLAR VALUE FLOW OF
GOODS AND SERVICES THROUGHOUT
THE ECONOMY
EXAMPLE: THE $ VALUE OF 1 CAR
PURCHASED = $20000
1 HOURS OF ACCOUNTING
SERVICES=$100
2 TONS OF IRON ORE=$1000
The REAL flows and NOMINAL
flows
THE NOMINAL FLOW:
SINCE THE MONEY FLOWS
DEAL WITH PRICES IT MAY
DISTORT THE ACTUAL
PRODUCTION OF THE
ECONOMY. IT INCLUDES
INFLATION
Factors Market
D
S
P
Q
CONSUMERS
PRODUCERS
Product Market
D
S
P
Q
The INCOME sector and the
EXPENDITURES sector
The two sided economy within
this model
EVERY PRODUCT THAT IS
MADE IN AN ECONOMY CAN
BE SEEN IN TWO WAYS FOR
THE INCOME INCLUDED IN
IT OR FOR THE PRICE IT IS
BEING SOLD AT
The two sided economy within
this model
EXAMPLE: A loaf of bread THAT
SELLS FOR $1
IN THAT ONE DOLLAR LOAF,
THERE ARE 4 CATEGORIES OF
INCOME
WAGES AND SALARIES = $.60 , RENT
= $ .15 , INTEREST= $ .20, PROFIT=$
.05
THEREFORE 60+15+20+5=$1 WHICH
IS ALL THE INCOME INCLUDED IN
The two sided economy within
this model
OR THE EXPENDITURE
EXTENDED TO PURCHASE
THAT LOAF WHICH IS $1
THE TWO SIDES ALWAYS
EQUAL:
INCOME
60+15+20+5 =
EXPENDITURES
$1
INCOME
Factors Market
D
S
P
Q
PRODUCERS
CONSUMERS
Product Market
D
S
P
EXPENDITURES
Q
Economic growth within this
model
Leakages take money out of the
economy while injections put money
into the economy.
For economic growth the economy
needs more injections than leakages
Economic growth within this
model
Yearly government budgets:
a. if G >T = deficit which is good for the short
term economy
b. if G<T = surplus which is bad for the short
term economy
c. if G=T= balanced budget which is neutral
for the economy
Economic growth within this
model
Yearly trade balance: X - IM = surplus,
a. if X >IM = surplus which is good for the
short term economy
b. if X<IM = deficit which is bad for the short
term economy
c. if X=IM= balanced budget which is neutral
for the economy
Economic growth within this
model
Investments and savings:
a. if I >S = net injections which is good for the
short term economy
b. if I<S = net leakages which is bad for the
short term economy
c. if I=S= no change which is neutral for the
economy
Economic growth within this
model …mathematical examples
C=consumer expenditures
Starting economy: Y1 = C + Leakages
Ending economy: Y2 = C + Injections
Yearly Economic change = Y2 - Y1
Yearly % Economic change = change /
Y1
Example: C=300, G=20, I=30, IM=25,
T=15, X=35, S=10
Economic growth within this
model …mathematical examples
•What income did the country start with?
•What income did the country end with?
•What was the change?
•What was the % change?
What was the government budget?
What was the trade balance?
What was the investment savings
balance?
Economic growth within this model
…mathematical examples
•What income did the country start with?
350
•What income did the country end with?
385
•What
wasthe
the
change? 35
•What was
government
budget? T-G = 15-20=
5
deficit…good
•What
was thefor
%economy
change? 10%
•What was the trade balance? X-IM=35-25=10
surplus…good for the economy
•What was the investment savings balance? IS=30-10=20 surplus … good for the economy
Factors Market
D
I
S
P
Q
S
CONSUMERS
PRODUCERS
T
Product Market
D
S
IM
P
Q
X
G
Economic growth within this
model …mathematical examples
PROBLEM 1
Example: C=500, G=40, I=20, IM=35,
T=45, X=25, S=30
Economic growth within this model …mathematical
examples
Example: C=500, G=40, I=20, IM=35, T=45,
X=25, S=30
•What income did the country start with?
•What income did the country end with?
•What was the change?
•What was the % change?
What was the government budget?
What was the trade balance?
What was the investment savings
balance?