Production Definition:-Economic production is an activity carried out under the control and responsibility of an institutional unit that uses inputs of land, labour, capital, and entrepreneurship to produce outputs of goods and services. The Three Fundamental Economic Questions What to produce? How to produce? For whom to produce? Opportunity Cost The best alternative sacrificed for a chosen alternative.

The production possibilities frontier Shows the maximum combination of two outputs that an economy can produce given its available resources and technology.

All points along the curve are maximum possible combinations of consumer goods and consumer services. Scarcity limits an economy to points on or below the production possibilities frontier. The production possibilities frontier consists of all efficient output combinations where an economy can produce more of one output only by producing less of the other output.

The Law of Demand The Principle that there is an inverse relationship between the price of goods and services and the quantity buyers are willing to purchase in a defined time period, ceteris paribus. Demand Curve p. 54 The Law of Supply The principle that there is a direct relationship between the price of a good and the quantity suppliers are willing to offer for sale in a defined time period ,ceteris paribus. Supply Curve p. 63 Equilibrium p. 72 Price System p. 74

Gross Domestic Product The Market Value of all final goods and services produced within a nation’s geographic borders during a period of time , usually a quarter or a year. GDP counts only new domestic production GDP counts only final goods. Gross National Product (GNP) The income accruing to a country’s residents from the production of all final goods and services during a period of time , no matter where in the world the goods and services are produced

GDP Formula GDP = C+I+G+(X-M) Calculating GDP using the Expenditure Approach Household consumption expenditures (C) -comprise total spending by households for durable goods, non- durable goods and services Gross private domestic investment (I) -is the sum of two components:1) fixed investment expenditures for newly produced capital goods 2) changes in private-sector inventories, which is the net change in value of unsold finished products, unfinished products and raw materials and raw materials purchased by firms but as yet unused in production.

Government consumption and gross public investment expenditure (G) -the value of all g+s by governments ( at all levels ) purchased in a particular period. salaries for teachers, nurses, defence, and other govt employees, consumables, entertainment etc. investment type goods, roads, school and hospital, navy ships, aircraft Does not include transfer payments

Net Exports (X-M) Exports-expenditures by foreigners for domestically produced goods and services. Imports- the dollar amount of a nation’s purchases from producers in other countries Exhibit 11.3 p. 263

World’s biggest economies (IMF 2018) https://www.weforum.org/agenda/2018/04/the-worlds-biggest- economies-in-2018/

Comparison Income per Capita 2017 (in current US Dollars) 2) Australia 55,690 3) Canada 45,081 4) Germany 45053 5) France 39,890 6) UK 39,761 7) Japan 38152 8) Italy 32,355 9)Brazil 9,896 10) China 8,806 11) India 1,979 C

Shortcomings of GDP per Capita as a measure of Distribution of Income 1) only valid comparison for that year i.e.2017 because current US $ used for comparison. Therefore changes in exchange rates affect annual figures 2) Per Capita does not show distribution of Income- could be skewed towards small % of population 3) Nations with highest GDP not same as nations with highest per capita GDP e.g .Switzerland 82,892, Norway 74,448, Iceland 70,588 Qatar 60,940 Singapore 57,495. 4)How good and free are health, education, transport, housing.

Other National Accounts Gross National Expenditure equals C+I+G-X Gross Domestic Product equals C+I+G+X-I Net Domestic Product equals GDP-Depreciation Allowances Net National Product equals NDP-Net Income Paid O/S Net Disposable Income NDP-Net Transfers O/S (foreign aid and pensions) Refer to exhibit 11.7 p 275

What are the shortcomings of GDP as a measure of Economic Welfare Non-market transactions not included It does not show per capita or how it is distributed It is not definitive about type of product or the quality How many hours have been worked to produce the volume of prod. It does not include the u/ground economy It does not include the negative externalities as a result of production Ref. p.268-269

Australia GDP c.f. Internationally

The Basic Circular Flow Model p 260

Circular Flow Model –Open Economy p 262

A Healthy Economy should be Designed to thrive,not grow https://ted.com/talks/kate_raworth_a_healthy_economy_should_be _designed_to_thrive_not_grow?utm_source=tedcomshare&utm_me dium=email&utm_campaign=tedspread