00Property and services market is where households
00Property Economics and Finance AssignmentProperty Economics and Finance AssignmentNAME: SIPHOKAZI MBELEBELESTUDENT NUMBER: 217128130LECTURER: MR MARTEN VAN DOESBURGHCOURSE: REAL ESTATE365760topTABLE OF CONTENTSTABLE OF CONTENTSPage 1: Cover pagePage 2: Table of contentsPage 3: Markets in EconomicsPage 4: Continuation of markets in economicsPage 5: Total production and incomePage 6: Total production and income continuedPage 7: Total expenditurePage 8: The circular flow diagram Page 9: The circular flow diagram continuedPage 10: Bibliography and references right557403MARKETS IN ECONOMICS0MARKETS IN ECONOMICSGOODS AND SERVICES MARKETThe goods and services market is where households purchase consumable items and businesses sell their wares. The market includes stores, the internet, and any other place where goods and services are exchanged. For example when you go to the shop or the internet café or even just trade with your friends, you are dealing in the goods and services market. It is here that end products are traded. Consumers pay money to the business, this contracts with the factor market, where businesses purchase the resources they need to produce an item.
In the goods and services market, the law of supply and demand determine a good price and output.FACTOR MARKETA factor market is a market place for the services of a factor of production. A factor market facilitates the purchase and sale of services of factors of production, which are (labour, capital, land and entrepreneurship) that are used by a firm to make a finished product. A factor market is distinct from the goods and services market, which is the market for finished products or services.As an example of a factor market, the market for refrigerators and dishwashers would be the kitchen goods market. The market for workers who are skilled in the refrigerator and dishwasher assembly would be an example of a factor market.
Another example of a factor market would be the market for raw materials like steel and plastic, which are the materials used for both refrigerators and dishwashers. Household and firms are a vital part of the economy. While households are essentially buyers and firms are sellers in the goods and services market, these roles are reversed in the factor market. In the factor market, households are the sellers of factors of production like their labour and capital (in the form of their savings), while firms are the buyers of these factors.
The combination of the factor market and the goods and services market forms a closed loop for the flow of money. Households supply labour to firms, which pay them wages and salaries that are then used to buy goods and services from the same firm. This kind of relationship benefits the economy.THE PRODUCT MARKET In economics, the product market is the marketplace in which final goods and services are offered for purchase by consumers, businesses and the public sector. Focusing on the sale of finished goods, it does not include trading in raw or other intermediate materials.THE RESOURCE MARKETA resource market is a market where a business can go and purchase resources to produce goods and services.
Resources markets can be distinguished from product markets, where finished goods and services are sold to consumers and financial markets, where financial assets are traded. A resource market supplies business the resources they need in to order to produce goods and services. Common resources include the four factors of production namely labour, capital, land and entrepreneurship. right593388Total production, total spending and total income in the economy and how they are relatedTotal production, total spending and total income in the economy and how they are relatedEconomics is essentially concerned with what to produce, how to produce it and how to distribute the products between various participants. The main focus is on production. It stands to reason that the total production of goods and services is of major concern to economists. But production is not pursued for its own sake.
The ultimate aim is to use or consume the products to satisfy human wants. PRODUCTIONProduction generates income earned in the production process by the various factors of production and this income is then spent to purchase the products. Take note that all these things are happening at the same time.
In other words, production occurs, income is earned and all or part of the income is spent to buy goods and services that are available. Therefore there is a continuous circular flow of production, income and spending in the economy.Total production is simply the production of all goods and services in the economy. This production generates an income, the value of which is equal to the total production. INCOMEIncome is generated through production. The only way in which total income in the economy can be raised is by increasing production.
Individuals may, of course benefit at the expense of other individuals. For example, if Sipho wins the lottery, he benefits, but at the expense of the people who bought the tickets and didn’t win anything. However, for the economy at large, income can be increased only by producing more.
Total income and total production are two sides of the same coin. There are four types of income, each associated with a different factor of production. The remuneration of your natural resources or land, is called rent. Wages and salaries are the remuneration of labour, while the remuneration of capital is called interest.
Finally, the remuneration of entrepreneurship is profit. The total income in the economy thus consists of rent, wages and salaries, interest and profit and the value of total income is identically equal to the value of total production. EXPENDITUREThere are four basic sources of spending in the economy, namely Households, Firms, The government and foreign sector which is the rest of the world.HOUSEHOLDSA household can be defined as all the people who live together and who make joint economic decisions or who are subjected to others who make such decisions for them. Members of households consume goods and services to satisfy their needs.In a mixed economy, most of the factors of production are owned by households.
Labour is obviously owned by the members of households. Although households own factors of production, these factors cannot satisfy human wants directly. Households, therefore sell their factors of production to firms that combine these factors and convert them into goods.
And services. In return for the factors of production that they supply, the households receive income in the form of salaries and wages, rent, interest and profit. This income is then used to purchase consumer goods and services which satisfy human needs.FIRMSA firm can be defined as the unit that employs factors of production to produce goods and services that are sold in the goods market. A firm is actually an artificial unit.
Firms are engaged primarily in production. Firms are the units that convert factors of production into the goods and services that household’s desire. Firms are therefore the buyers in the factor market and the sellers in the goods market. In a market economy, it is the firms which decide how goods and services will be produced.
One of the factors of production purchased by firms is capital. Capital goods are man-made factors of production, such as machinery and equipment, which are used to produce goods and services. Firms are responsible for spending on capital goods.
THE GOVERNMENTThe government is a broad term that includes all aspects of local, regional and national government. Government includes politicians, civil servants, government agencies and other bodies belonging to or under the control of government.The primary function of the government is to establish the framework within which the economy operates. Government also purchases factors of production (primarily labour) from households in the factor market and also purchases goods and services from firms in the goods market. In return, government provides household and firms with public services such as education, health services, defenses, roads and dams.
These goods and services are financed mainly by levying taxes on the income and expenditure of households. THE FOREIGN SECTOR The foreign sector consists of all countries and institutions outside the country’s borders. The flow of goods and services between the domestic economy and the foreign sector are exports and imports. Exports are goods that are produced within the country, but sold to the rest of the world. Imports on the other hand are goods that are produced in the domestic economy.South Africa’s exports consists mainly of minerals, while the country’s imports are mainly capital and immediate goods that are used in the production process. In the case of imports, the spending originates in the domestic economy.
This spending by importers represents the income of the other countries’ exporters.right2303487right518160The Circular flow diagram and explanation0The Circular flow diagram and explanationThe circular flow diagram is a graphical representation of the flow of goods and services between two distinct parts of the economy. Market for goods and services, where households purchase goods and services from firms in exchange for money. Markets for factors of production (such as labour or capital), where firms purchase factors of production from household 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, it is where firms sell the goods and services that they have produced, receiving a revenue paid by households.This market represents the place where money and goods are exchanged. In the diagram above, the flow of money which is represented by the green arrow, goes from households to firms, in exchange for finished products, which flow from firms to households which is the red arrow.
The market for factors and 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 (this is illustrated by the green arrow in the diagram above) in the form of wages in exchange for labour, interests for capital and rent for the use of the land. Factors of production flow from households (illustrated in the red arrow in the diagram above) to firms, so they can produce more goods and services. Therefore, the exchanges made in the economy imply a redistribution of rent according to the diagram above and the creation of value makes the economy grow.
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