the flow of goods and services in a market economy
TRANSCRIPT
![Page 1: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/1.jpg)
The flow of goods and services in a market economy
![Page 2: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/2.jpg)
FLOW OF GOODS AND SERVICES IN THE ECONOMYAN OPEN ECONOMY
B2 B1
FINANCIAL MARKETS
A2 A1
FIRMS HOUSEHOLDS
FA CTOR MARKET
PRODUCT MARKET
D S
DS
P
Q
P
Q
S
T
IM
G
I
FINANCI
X
I
![Page 3: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/3.jpg)
S
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
T
D
IM
GX
I
![Page 4: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/4.jpg)
The playersThe 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
![Page 5: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/5.jpg)
CONSUMERSPRODUCERS
![Page 6: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/6.jpg)
The marketsIN 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
![Page 7: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/7.jpg)
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
D
![Page 8: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/8.jpg)
The flows
![Page 9: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/9.jpg)
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
DB1B2
A2A1
![Page 10: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/10.jpg)
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
![Page 11: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/11.jpg)
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
DB1B2
A2A1
![Page 12: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/12.jpg)
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.
![Page 13: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/13.jpg)
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
![Page 14: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/14.jpg)
S
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
T
D
IM
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
![Page 15: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/15.jpg)
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)
![Page 16: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/16.jpg)
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
D
GX
I
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)
![Page 17: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/17.jpg)
The whole model
![Page 18: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/18.jpg)
S
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
T
D
IM
GX
I
![Page 19: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/19.jpg)
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
2 TONS OF IRON ORE
![Page 20: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/20.jpg)
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
![Page 21: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/21.jpg)
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
D
![Page 22: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/22.jpg)
The REAL flows and NOMINAL flowsTHE 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
![Page 23: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/23.jpg)
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
![Page 24: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/24.jpg)
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
D
![Page 25: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/25.jpg)
The INCOME sector and the EXPENDITURES sector
![Page 26: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/26.jpg)
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
![Page 27: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/27.jpg)
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 IT
![Page 28: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/28.jpg)
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
![Page 29: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/29.jpg)
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
D
INCOME
EXPENDITURES
![Page 30: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/30.jpg)
Economic growth within this modelLeakages take money out of the economy while injections put money into the economy.For economic growth the economy needs more injections than leakages
![Page 31: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/31.jpg)
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 economyc. if G=T= balanced budget which is neutral for the economy
![Page 32: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/32.jpg)
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 economyc. if X=IM= balanced budget which is neutral for the economy
![Page 33: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/33.jpg)
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 economyc. if I=S= no change which is neutral for the economy
![Page 34: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/34.jpg)
Economic growth within this model …mathematical examplesC=consumer expendituresStarting economy: Y1 = C + LeakagesEnding economy: Y2 = C + InjectionsYearly Economic change = Y2 - Y1Yearly % Economic change = change / Y1 Example: C=300, G=20, I=30, IM=25, T=15, X=35, S=10
![Page 35: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/35.jpg)
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?
![Page 36: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/36.jpg)
Economic growth within this model …mathematical examples
•What income did the country start with? 350•What income did the country end with? 385•What was the change? 35•What was the % change? 10%•What was the government budget? T-G = 15-20= 5 deficit…good for economy
•What was the trade balance? X-IM=35-25=10 surplus…good for the economy
•What was the investment savings balance? I-S=30-10=20 surplus … good for the economy
![Page 37: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/37.jpg)
S
S
D S
Product Market
Factors Market
CONSUMERSPRODUCERS
P
Q
P
Q
T
D
IM
GX
I
![Page 38: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/38.jpg)
Economic growth within this model …mathematical examples
PROBLEM 1
Example: C=500, G=40, I=20, IM=35, T=45, X=25, S=30
![Page 39: The flow of goods and services in a market economy](https://reader036.vdocuments.net/reader036/viewer/2022062322/5697bff21a28abf838cbb9cb/html5/thumbnails/39.jpg)
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?
Example: C=500, G=40, I=20, IM=35, T=45, X=25, S=30