Households and Firms Participants = households & firms Households: a psn or group of ppl living in a...
-
Upload
arron-wilkinson -
Category
Documents
-
view
224 -
download
0
Transcript of Households and Firms Participants = households & firms Households: a psn or group of ppl living in a...
![Page 1: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/1.jpg)
![Page 2: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/2.jpg)
•Households and Firms
•Participants = households & firms
•Households: a psn or group of ppl living in a single residence
•Own FOP
•Firm (business): organization that uses resources to produce a product or service, which it then sells
• transform inputs (factors of production) into outputs (goods/services)
![Page 3: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/3.jpg)
Circular Flow Model of a Market Economy
• Visual representation of exchanges that take place in a free market economy
• Shows how households and firms exchange money, resources, and products
![Page 4: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/4.jpg)
![Page 5: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/5.jpg)
Factor Markets (Resource Markets)
• Lower half of circular model
• Firms purchase factors of production from households (factor market)
• Purchase or rent land• Hire workers, pay
wages/salaries• Borrow $ from
households to pay capital
![Page 6: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/6.jpg)
Product Market
• Top half of circular flow model
• Households buy goods and services that firms produce (product market)
![Page 7: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/7.jpg)
The Self-Regulating Nature of the Market Place
• The Wealth of Nations
• Adam Smith: both the buyer and seller consider only their self-interest.
• Self-interest = motivating force in free market
• Positive incentive of lower prices = buying of more goods
![Page 8: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/8.jpg)
The Invisible Hand
• Self-interest and competition regulate the market economy
• Laissez-Faire government
• Market is self-regulating and supply & demand = the invisible hand
• Coined by Adam Smith
![Page 9: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/9.jpg)
Incentives
![Page 10: Households and Firms Participants = households & firms Households: a psn or group of ppl living in a single residence Own FOP Firm (business): organization.](https://reader030.fdocuments.in/reader030/viewer/2022033023/56649e8a5503460f94b8f3a6/html5/thumbnails/10.jpg)
Circular Flow Model of a Mixed Economy