ECS 1501 Learning Unit 3

Learning Outcomes Once you have studied this Learning Unit you will: know more about the three major flows in the economy; know the difference between a stock and flow variable; distinguish between the four factors of production; know more about households and firms; distinguish between the goods and factor market; and explain interaction between households and firms.

There are many sectors in an economy There are many sectors in an economy. Like a chain, al the sectors are linked, one sector cannot work without being affected by others In this study unit we will examine how the goods and factor markets work together.

3.1 Production, income & spending Read pg. 40 in your textbook. 3.1 Production, income & spending Microeconomics = When you are examining individual parts of an economy Macroeconomics = When you are dealing with the economy as a whole In an economy there is a high degree of interdependence In this learning unit you need to tell the students more about the different types of economics systems. Although they are different – they all try to solve the basic fundamental economics problems: what to produce, how to produce it and for whom to produce it.

Read pg. 40 – 42 in your textbook. 3.1 Continue Production Income Spending When producers produce goods and services, they pay households for their factors of production (like their labour). This leads to an income for households. When households spend the money on goods and services, firms get revenue, which they use to produce more goods and services Households spend this income, to buy goods and services

Study Box 3-1 in your textbook. Stock and flows Stock variable Flow variable Has no time dimension and can only be measured at a specific moment I.e. the world population Has a time dimension and can only be measured over a period of time I.e the number of babies born in a year

3.2 Source of production: . The factors of production Read pg. 42 – 45 in your textbook. 3.2 Source of production: . The factors of production There are 4 main factors of production Natural Resources Labour Capital Entrepreneurship Human Resources

3.2 Source of production: . The factors of production Read pg. 42 – 45 in your textbook. 3.2 Source of production: . The factors of production There are 4 main factors of production Natural Resources Labour Capital Entrepreneurship Non-Human Resources

3.2 Source of production: . The factors of production Read pg. 42 – 45 in your textbook. 3.2 Source of production: . The factors of production There are 4 main factors of production Natural Resources Labour Capital Entrepreneurship Primary Resources

3.2 Source of production: . The factors of production Read pg. 42 – 45 in your textbook. 3.2 Source of production: . The factors of production There are 4 main factors of production Natural Resources Labour Capital Entrepreneurship Secondary Resources

Natural Resources Consist of all the gifts of nature Includes land, water, vegetation, minerals, marine resources animal life and many more Availability cannot be increased Minerals: Non-renewable or exhaustible assets Supply of natural resources are fixed Both quantity and quality of natural resources are important

Labour The exercise of human mental and physical effort in the production of goods and services Includes all human effort exerted with a view to obtaining reward in the form of income Quantity of labour depends on the size of the population and the proportion of the population that is willing and able to work (labour force) The quality of labour is usually referred to as human capital, it includes skill, knowledge and health of workers

Capital Comprises of all manufactured resources such as machines, tools and buildings which are used in the production of other goods Capital goods are produced to be used in the production of other goods Capital goods do not have an unlimited life, they are subject to wear and tear Provision for depreciation is made for the replacement of existing capital goods In the national accounts it is referred to as consumption of fixed capital

Entrepreneurship Entrepreneurs are the people who combine the factors of production and who take risks by producing goods They are the driving force behind production They are innovators and introduce new products and new techniques on a commercial basis