1. ECS 1501
Learning Unit 3

2. 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.

3. 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.

4. 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.

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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