Economics

• The Circular Flow of Income Model consists of 5 sectors: Household, Business, Government, Financial and Overseas, .
• Household Sector:

  • The primary economic role of the household sector is consumption
  • household to business= economic resources (land, labor, capital and enterprise)
  • household to business = consumption (payment for goods and services)
• Business Sector:

  • The primary economic role of the business sector is the production of goods and services
  • Business to household = income (rent, wages, interest, profit)
  • Business to household= output (goods and services)
• Finance Sector:

  • household to finance sector= savings
  • finance to business sector= investments
• Government Sector:

  • household to gov=taxation
  • gov to business = gov expenditure
• Overseas Sector:

  • household to overseas= imports
  • overseas to business= exports
• Free market:

  • controlled by supply and demand, not government regulations
  • Countries include Singapore, New Zealand and Hong Kong
  • Advantages include efficient resource allocation and variety, competition, freedom to innovate, and absence of red tape
  • Disadvantages include hard for other businesses to enter the market, lack of public goods provided by the government and limited product ranges
• Command:

  • Governments own factors of production, set prices, and production schedules
  • Countries include Cuba, North Korea, and the former Soviet Union
  • Advantages include common good replacing profit, low levels of inequality and unemployment
  • Disadvantages include lack of competition, innovation and efficiency, presence of black market and production quantities are not driven by consumer demands and potential for market failures
• Subsistence:

  • Consumer and entrepreneur communities make economic decisions at low-income levels
  • Countries include Brazil, India and Sub-Saharan Africa
  • Advantages include food security, better for the environment, less reliance on chemicals and fossil fuels
  • Disadvantages include heavy reliance on nature, scarcity of human resources, vulnerability to larger and wealthier countries
• Mixed economy

  • Private businesses and national government services
  • Countries include France, USA and Australia
  • Advantages include increased efficiency market-based incentives
  • Disadvantages include Businesses may campaign for favorable regulations and that the economy don’t avoid market effects from government intervention
• Leakages include savings, taxation and imports. Injections include investment, government spending and exports.
• In the middle of the circular flow chart, there is economic resources (land, labour, capital, enterprise), income (rent, wages, interest, profit), consumption (payment of goods and services) and output (goods and services)
• Opportunity cost is the potential benefits an individual, investor or business misses out on when choosing one alternative over another
• Universal economic problem (UEP) is the endless needs and wants of society, the resources available to satisfy them are limited (scarce)
• Resources are limited in two ways:

  1. Limited in physical quantity, as in the case of land, which has a finite quantity 2. Limited in use, in the case of labour and machinery, which canonly be used for one purpose at a time
• The role of the market in an economy:

  • Markets provide places for firms to sell their goods and gain profit
  • Markets provide places for consumers to buy the goods and services they need
  • Markets are mostly self-regulated, relying on the principles of supply and demand to determine prices
• Markets influence the economy by determining prices, allocating resources efficiently, fostering competition, and influencing consumer behavior
• Standard of living and quality of life differ in that standard of living focuses on material well-being, while quality of life encompasses subjective factors like freedom, equality, and personal preferences
• Four types of economies:

  1. Free market economy

  2. Command economy

  3. Subsistence economy

  4. Mixed economy
• Standard of living is the condition/environment and what resources are accessible. It refers to the level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or a geographic area
• Difference between NEEDS and WANTS:

  • Needs are essential for survival (e.g., food, water, shelter)
  • Wants are desires that are not necessary for survival but add comfort or pleasure (e.g., luxury items)
• Measuring standard of living is through the personal factors as allows identification of changes in living conditions within an economy.
• Outer arrows

  From household to business = economic resources (land, labor, capital and enterprise)

  From business to household= output (goods and services)
• Inner arrows

  From business to household sector= Income (rent, wage, interest, profit)

  From household to business sector=Consumption (payment of goods and services)
• Quality of life is people's personal preferences, opportunity to change what is accepted and human rights & freedom's allowed (well-being, happiness)
• Factors that affect standard of living is: wealth, housing, healthcare, safety, climate and poverty rate etc.
• What are elements of a strong economy?

  high employment rate

  • job opportunities, education

  high productivity

  • efficiency, demand

  lower price increase

  • scarcity, market competition

  high consumer confidence

  • quality of product, price stability

  high standard of living

  • wealth, healthcare, housing etc.
• Internal stability accounts the factors of high employment and stable prices

  High employment

  • unemployment is supported by gov (centre-link)
  • employment is supporting gov (tax) - production, consumption and education increases

  Stable prices

  • consumer confidence increase = more gov expenditure
• What are personal factors?

  • career/job
  • health
  • life expectancy
  • access to nutritious food
  • where you live
  • education
• Quality of life is more subjective and intangible terms as such it can often be hard to quantify. The factors that affect quality of life vary with personal preferences that can include human rights and freedoms.