ECONOMICS 1B {ECS 1601} INTERDEPENDENCE OF THE MAJOR SECTORS, MARKET AND FLOWS IN A MIXED ECONOMY

ECONOMICS 1B {ECS 1601} INTERDEPENDENCE OF THE MAJOR SECTORS, MARKET AND FLOWS IN A MIXED ECONOMY  Production is not pursued for its own benefit, the ultimate aim is to use or consume the products to satisfy human wants.  Production creates income and this income is then spent to purchase products.  This process contains 3 major elements are:  Production  Income  Spending.  One problem is how the income is distributed among the various participants in the economy.  The following are 4 economic participants:  Households/Consumption (C)  Government Expenditure (G)  Foreign sector (Exports & Imports) (F)  Businesses/Firms (B)  Production, income and spending are all FLOWS.  Stock variable – can only be measured at a particular point in time and has no time dimension (wealth, assets, liabilities, capital, population, and balance on savings account).  FLOW VARIABLE – can be measured over a period of time (income, profit, loss, investment).  In mixed economy households, firms, government and foreign sector are all participants.  Exchange is an important economic activity that links all the various sectors. 1. HOUSEHOLDS  Households can be defined as all the people who live together and who make joint economic decisions.  Can be an individual, whole family.  These members are called consumers.  Consumption – the act of using or consuming goods and services.  Symbol C = total consumption or consumer. In a market economy it is the households or consumers that largely determine what should be produced. In a mixed economy most of the factors of production are owned by households.