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- AE106
ECONOMICS
- is a social science concerned with the production,
distribution, and consumption of goods and services. It
studies how individuals, businesses, governments, and
nations make choices about how to allocate resources.
Durable goods are goods that last more than three (3) three years when
used on a regular basis. Non-durable goods are goods that last less than
three (3) years when used on a regular basis. Examples of durable goods
are appliances, vehicles and machineries. Non-durable goods include
food, medicine and clothing, among others.
Consumers are people who use goods and service. Services are the
efforts rendered by someone for a price such as haircuts, doctor’s visits, or
economic consulting.
Value is an assignment of worth basically expressed in terms of price.
The assignment is usually based on the usefulness or scarcity of the item.
Needs are basic requirements for survival like food, water, and
shelter. In recent tears we have seen a perceived shift of certain items
from wants to needs. Telephone service, motor vehicles and education
are needs.
1.2
MICROECONOMICS
VS
MACROECONOMICS
Microeconomics
- it is the study of what is likely to happen (tendencies) when
individuals make choices in response to changes in incentives,
prices, resources, and/or methods of production. Individual actors
are often grouped into microeconomic subgroups, such as
buyers, sellers, and business owners. These groups create the supply
and demand for resources, using money and interest rates as a
pricing mechanism for coordination.
• -market for goods and services, where households purchase goods and services from
firms in exchange for money;
• -market for factors of production (such as labour or capital), where firms purchase
factors of production from households in exchange for money.
The market for goods and services is the place where households spend their
money buying goods and services produced by firms. In other words, is the
place where firms sell the goods and services they have produced, receiving
a revenue paid by households.
This market represents the place where money and goods are exchanged. In
this case, the flow of money (green arrow in the diagram below) goes from
households to firms, in exchange for finished products, which flow from firms
to households (red arrow).
The market for factors of production is the place where households offer their
labour, capital and other factors such as land, receiving an income for their
use. Firms use these factors in their production.
In this case, money flows from firms to households (green arrow in the diagram
below) in the form of wages in exchange for labour, interests for capital and
rent for the use of land. Factors of production flow form households (red
arrow) to firms, so they can produce more goods and services.
When we combine both diagrams, we get the circular-flow diagram, as
shown below. The exchanges made in the economy imply a redistribution of
rent according to the diagram, and the creation of value makes the
economy grow.
- END OF CHAPTER 1-