Transcript Firms - Western Springs College

We’ll be looking at a model of an economy
This is an economic model that attempts to
explain the real world. It simplifies all that
goes on in a real economy and just focuses
on what is considered important.
We start with something very simple, and
gradually build a more detailed and
complex model. So, while we get closer to
reality, it is still only a model.
First, the productive sector
employs resources (such as
labour) and uses them to
create goods and services
(output).
the Firm
Households consume these
goods and services and
provide Firms with the
resources (such as labour)
that they require.
Households
The activities of Households
and Firms are linked.
Households provide
resources to Firms and earn
income (such as salaries and
wages) in exchange.
Firms produce goods and
services which they sell to
Households.
HouseholdsFirms
Households provide
resources to Firms and earn
income (such as salaries and
wages) in exchange.
Firms produce goods and
services which they sell to
Households.
Resources and goods and
services flow one way
These are called Real Flows
because they are physical
items
Money Flows go in the other
direction
Households
Firms
This is called the Circular Flow Model. It is made up of Real Flows and Money
Flows.
Households
Firms
This is called the Circular Flow Model.It is made up of Real Flows and Money
Flows.
Income
Households
Resources
Firms
Goods and Services
Consumer Spending
Task
Expanding the Model
Households and Firms are not the only sectors in the economy. Before
expanding the model, we will simplify it by only using money flows from now on.
Income
Households
Resources
Goods and Services
Consumer Spending
Firms
So,
are two
new money
savings
and companies
investment.
The there
Financial
Sector
includesflows,
banks,
insurance
and other financial
institutions.Households save any income not spent with this sector
Firms go to banks to borrow funds for expansion: new factories, new machines
or research and development. This is called investment.
Income
Households
Firms
Consumer Spending
Finance
Sector
Task
The Government in NZ accounts for over 35% of all economic activity.
It collects direct tax from households (PAYE)
as well as indirect taxes from firms (GST, excise taxes...)
Income
Households
Firms
Taxes
Taxes
Consumer Spending
Finance
Sector
This taxation revenue is then used to make transfer payments such as:
• social welfare benefits to NZ’s most vulnerable citizens,
• subsidies to business for merit goods such as medicines,
• other goods and services such as police, hospitals, roading...
Income
Households
Firms
Taxes
Taxes
Transfers
Subsidies
Government Spending
Consumer Spending
Finance
Sector
Task
Another sector to add is the Overseas Sector. Firms sell their products to
foreign buyers, earning export receipts.
A real flow of exports is matched by a money flow, export receipts.
Income
Households
Firms
Taxes
Taxes
Transfers
Subsidies
Government Spending
Consumer Spending
Finance
Sector
Firms also import goods and services to use or sell.
The real flow of imports is matched by the money flow, import payments.
Income
Households
Firms
Taxes
Taxes
Transfers
Subsidies
Government Spending
Consumer Spending
Finance
Sector
Our new model, showing money flows only, now looks like this.
Income
Households
Firms
Taxes
Taxes
Transfers
Subsidies
Government Spending
Consumer Spending
Finance
Sector
Our new model, showing money flows only, now looks like this.
Income
Households
Firms
Taxes
Transfers
Taxes
Task
Subsidies
Government Spending
Consumer Spending
Finance
Sector
End of slide show, click to exit
Income
Resources
Households
In which flow or sector would
you classify the following?
Firms
Goods and Services
A yacht
Goods/Services Consumer Spending
The buyer of a yacht
Households
Money spent on a yacht
Consumer Spending
Timber for the decking
Resources
A yacht manufacturer
Firms
A boat builder
Resources
Wages paid to a boat builder
Income
Payment for timber
Income
Profits from the sale of yachts Income
ANSWERS
Back
Income
Savings can be defined as
Households
income not spent
Firms
Investment can be defined as
the creation of capital goods
Using these definitions, classify the
following into one of the money flows:
Consumer Spending
Lee deposits money in the bank
Savings
Lee buys a van
Consumer Spending
LBJ Ltd buys a van
Investment
Lee buys shares in LBJ
Savings
Finance
LBJ uses a share float to expand their factory Investment
Lee receives his salary
Income
Lee gets a dividend on his shares Income
LBJ researches a new product
Investment
ANSWERS
Back
Income
Transfer Payments are a one-way
payment with no exchange occuring.
Households
Government spending only refers to
spending on goods and services when
an exchange of funds for commodities
does occur.
Taxes
Taxes
Subsidies
Transfers
Government Spending or Subsidy or
Tax or Transfer Payment?
Firms
Govt Spending
Consumer Spending
Finance
Unemployment benefit
Transfer Payment
Company taxes
Tax (from firms)
Free doctors visits for under 5s
Subsidy
Road User Charges
Tax (from firms)
Working for Families payment
Transfer Payment
ANSWERS
Purchase of new desks for classrooms Government Spending
Back
Income
Households
Taxes
Taxes
Firms
Subsidies
Transfers
Govt Spending
In which money flow or
sector would you classify
the following?
Consumer Spending
Finance
Sector
The Leeming Family
Household
Noel Leeming Appliances
Firm
Noel Leeming goes to work
Income
Leigh Leeming buys a new fridge
Consumption
F&P builds a new assembly line
Investment
F&P dish drawers are sold in Namibia
Leigh’s new fridge is produced in Australia
Export Receipts
Import Payment
ANSWERS
Copy this chart, then label the flows and sectors
using the list below:
•
•
•
•
•
•
•
•
•
JH Whittaker and Sons Ltd
Payment for imported cocoa beans
Whittakers purchase a new grinder
Chocolate lovers
Westpac Bank
Income from exported peanut slabs
Ghana
Sante Bar purchases
Factory workers wages