Table of contents Introduction page 1 Question1 Page 2 Markets in economy

Table of contents Introduction page 1 Question1 Page 2 Markets in economy… 1 Product market page3 Factor market resource page 3 Market for labour page3 Capital service Market…. page4 Money market…. Page4 Foreign market pag5 Land and resource market page 5 Question 2 page6 Production, income, expenditure in mixed economics page6 Production 2.1 Income… 2.2 page 7 Expenditure. 2.3 page 9 Question 3. Page 10 Circular flow diagram illustration Graph page 11 Conclusion page14 Introduction Economics is a social science concerned with the production, distribution and consumption of goods and services. It studies how individuals, businesses, government and nations make choices on allocating resources to satisfy their needs and wants, and tries to determine how the groups should organize and coordinate affords to achieve the maximum output. As the economy is broken into down into macroeconomics, which concentrate on the behavior of the aggregate economy, and microeconomics, which focuses on the individual consumers. For the purpose of this assignment I chose to focus in both economies while leaning more to the individuals focused economy. As for this assignment it is also important to focus on factors of production. A factor of production is an economic term which it is used to define of describes the inputs that used to produce goods and services in order to make economic profits. So that I can be able to analyze these following and how are they related in the economy and how they affect if and the inviduals and the markets in general Markets in economics, for which I focused in Markets for product, Markets for goods, Market for resources etc. then look at these at how they are related and how they affect the individual, the market, the economy and how they are affected by the economic activities of the other country and the hole world. The other focus is on production, income Spending in the mixed economy describing how the total production, total income and total spending in the economy are related, but chose to focus only in one year to be more specific and to be able to make this more direct and that is 2011. The third and the last part is the illustrstion of a circular flow with graph or diagram in the economy, to show the flow of goods and services, the flow of resources, the flow of money, land, labour, capital etc. also described and explained into details how each of the above mention flow, their effect to economy the individuals or consumers and the firms as general. I also took a look in the private sector with their effect in the circular flow, the international or foreign market also with their effect to the economy, the individuals, and the firms. QUESTION1 Markets in economics Markets for Products, goods, services, resources markets etc. The Products Market There are literally thousands of market for consumer goods and services, however, to understand and how the deferent elements of the economy are relocated, we lump all these markets together and call it the (Product Market). In economics we call these aggregate. In microeconomics we investigate the deferent markets individually. Entrepreneurship Entrepreneurship service are not traded in market entrepreneurship receive the profit or bear the loss that results from their business decision The Factor (Resources) Market This market is where services of the factors of production are traded, for example labour is hired, capital is borrowed, property is rented and an entrepreneur offers their services. These services earn the wages, interest, rent and profit respectively. The factor market therefore includes, amongst other the labour, property, and financial markets. The financial market services those who wish to save and those who wish to borrow. The money, capital and foreign exchange market are part of this market. Market for labour services Labour services are physical and natural work effort that people supply to the produce the goods and services. A labour market is a collection of people and firms who trade labour services. The price of labour services is the wage rate, some labour services are traded day by day. These services are called casually labour, people who pick fruit and vegetable often shows up in the farm and take whatever work available that day. But most labour services are traded on a contract, called a job. Most labour markets have many buyers and sellers and are competitive. In these labour markets, the wage rate is determined by supply and demand, just as the price is determined in any other competitive market. In some labour market, a trade union organizes labour, which introduce an element of monopoly on the market, a bargaining process between the trade union and the employer determine the wage rate. Capital service market Capital consists of the tools, instruments, machines, buildings and other construction that have been produced in the past and the business that used to produce goods and services. The physical objects are themselves goods, capital goods, capital gods are traded in the goods market, just as both water and toothpaste are. A price of a certain capital e.g. dumps truck, a capital good is determined by a supply and demand in the market for dump trucks. This market is the market for capital service. A market for capital services s rental market a market in which service of capital are hired. An example a market for capital service is the vehicle rental market in which Avis, Budget, Hertz, U-Hail and many other firms offers automobiles and truck for hire. The price in capital market service market is rental rate. Most capital services are not traded in a market, instead, a firm buys capital and use it itself. The services of the capital that a firm owns and operates have an implicit price that arises from depreciation and interest. Firms that buy capital and use it themselves are implicitly renting the capital to themselves. The money Market The money market in South Africa is the market for short term and very short-term (three years and shorter) savings and loan. It is not a market in a physical sense, in its simplest form it exists when parties, particularly consumers and producers, makes demand and short-term deposit and borrow on short term. In a more sophisticated form it exists when deposit and non-deposit intermediaries, businesses and the Cooperation for Public Deposit (CPD) engage in communications that influence the price of short-term funds and or short-term securities that change hand in the sophisticated section of the money market are bankers acceptances, short-term company debentures, treasury bills, Reserve Bank debentures and short-term government bonds. The SARB is a key institution in the money market. The foreign exchange market In its simplest form the foreign market exchange exists when a person buys foreign currency, for example dollar and or travelers decide to travel abroad and when a business buys foreign exchange in exchange for exports, in South Africa this all happens at banks. However, the foreign exchange market by its very nature is multinational in scope, the leading countries for foreign exchange dealings are London, New York and Tokyo. The South African rand is exchanged or traded freely in each of these markets and the SARB has no control over it. Markets for land service and natural resources land consist of the gifts of nature natural resources, the market for land as a factor of production is the market for the service of land the use of the land. The price of services of land is rental rate, most natural resources are non renewable, natural renewable resources are resources that can be used only once, example are oil, natural gas and coal. The price of non-renewable natural resource is called commodity price. QUESTION 2 Production, income and spending in the Mixed Economy2.1 Production 2.1 Production A mixed economy is a system that combines characteristics of markets command and traditional economies. It benefits from the advantages of all three while suffering from few of the disadvantages. A mixed economy has three of the following characteristics of market economy, first it protects private product, secondly it allows free market and the law of supply and demand to determine price, thirdly it is driven by the motivation of the self-interest of the individuals. But at this moment I take a look at production, income and spending in the mixed economy for which I base my investigation on a single year of 2011 comparing how these factors of markets are related. Business and other enterprises, government and the foreign sector all participate in the production process. Macroeconomic policies are used to create the framework and the mechanisms production takes place in the primary, secondary and tertiary sector where they focus in agricultural, mining, manufacturing, construction and service production. However, if we merely add up the market value o all outputs of all participants, we would not obtain a total greatly in excess of the value of the economys actual output. Such calculation would amount to double counting or in multiple counting by subtracting intermediate inputs from final outputs, we find the value that was added by each sector. Table of GDP at market price (Value added in Rand Billion 2011) 1. Primary sector3242 .Secondary sector5543. tertiary sector17894. Gross value added at basic price26704.1. Plus tax on products313Less Subsidies on products-19Gross domestic product at market price (GDP)2964 This table shows the value that was added in each sector of the South African economy in 2011, GDP at market price amounted to 2964 billion in 2011. This amount makes up the price paid by consumers as the circular flow 2.2 Income Gross domestic income is derived when the income earned by the owners of the factors of production are added together. The table below shows that Consumption of employees (line1) consists mainly of gross salaries of wages earned by labour. The net operation surplus (line2) include mainly the total value of goods and services that are Produced less cost. Cost consists of three elements Firstly, the cost of intermediate goods and service Secondly the cost of remuneration of employees And thirdly, the cost of the consumption of fixed capital. The net operation surplus shows the profits and surplus of enterprises before taxation. Consumption of employees1318Net operating surplus987Consumption of fixed capital376Gross value added at factor cost2631 other taxes on production50Less other subsidies on production-11Gross value added at basic price2670Taxes on products313Less subsidies-19Gross value added(1) at market Prices2964Primary income from the rest of the world 38Less primary income to the rest of the world104 Gross national income at market prices2898Current transfers to the rest of the world 11Less national disposable income at mart price2883The net operating surplus shows the profits and surpluses of enterprises before taxation. It therefore includes mainly rant on land (property), interest on capital and entrepreneurial profit, however these incomes are understanding by the amount provided for the consumption of the fixed capital (line3). This provision is based on an amount of the fixed capital and assets can therefore be regarded a part of income earned by capital as a factor of production. GNI table It shows the adjustment for the indirect taxes and subsides, that South African GDP (1) flow amounted to 2964 billion in 2011. This is an amount similar to the production and expenditure flow 1, 2 respectively. The table 2 also shows that income earned by the service of production can therefore be used in the calculation of GDP if this method of calculation is used it is indicated as GDP In the section after line 10b GDP is converted to GNI this we do by primary income from the e rest of the world (Primary implies income from the factors of production) 2 subtracting primary income to the rest of the world In spite of the adjustment shown in the table, not all personal income is included in the national income. Only which have been earned for service rendered is included Expenditure Expenditure on billion 2011 Final expenditure buy households 17037Final consumption by the general government636Gross capital formation585Residual item24Gross domestic expenditure 2982Less imports of goods854Expenditure on GDP at market price2964 Expenditure on GDP measures total expenditure on final goods and services produced within the borders of the country. It is calculated by adding together the expenditure of the four main participants in the circular flow model (household, government, business and the other enterprises) and the foreign In this table three it shows that the South Africa was importing more goods and services than it was exporting in 2011. This cause a leak from the circular flow to the value of about R18 million in 200, when taking into account the amount of the leak, expenditure at R2 964 million was smaller to the value of the total production in table one GDP calculated in terms of expenditures is indicated as GDP (E). It amounts CGI (X-M QUESTION 3 Consumers are the primary economy participants because they own- direct and indirect (through their business) the factors of production namely Labor, Capital, and entrepreneurship. Consumers have wants for goods and services that need to be satisfied. The variety and magnitude of their wants stimulate business enterprises and government to provide goods and services, and to import and export consumer sells the service of their factor of production to producers for a money income. Households consume the goods offered by the firms. However, households also offer firms factors so that the firms can produce products for the household to later consume. For example, households may supply land to produce goods or they may offer themselves in the form of labor. Households also offer capitals which are use to by the products from the firms. More on households as the participants The primary of households is to supply domestic firms with needed factors of production land human capital, real capital and enterprise. The factors of production are supplied by the factor owners in return for the reward. Land is supplied by land owners, human capital by labours real capital by the capitalist and the other three factors and bear the risk associated with production, Households resource consists mainly the wages earned, income from property (interest, dividends, income from land etc) of earnings from market production and social benefits. The balance of the operating account of households owing sole proprietorships is called mixed income because it corresponds indistinctly to the remuniraration for the work of the individual entrepreneur and to the remuneration of his production capital. Similarly, when households are producers of goods and services for their own end use (excluding housing service) they have a mixed income furthermore the balance of the operation account of household producing housing services is the gross operation margins which corresponds solely to the remuneration or the real estate capital. Producers (firms) They buy factor of production to the factor market to produce goods on services which then generate income for and profit for business. The producer is able to generate income through the purchases of their products by the consumers who are households and they also need the availability of the labours to be able to produce these good and servicers, who are then in return earn money through wages and land earn income through rental by the producers. The producer also generates some of their income through providing for other firm or producers like the private companies who may be use these factors of production for their production of the other products or for their consumption. We then therefore say producers buys the services of the factors of production to produce goods and services, their finished products are then sold to the other participants. They endeavor to earn sufficient income to meet their operating costs. Their activities affect the volume and smoothness of the real money flow and the flow in the economy. Governments Government provide public goods such as Roads, dams and lighting, and services such as education, protection, healthcare and social grants to provide these, government requires the factor services and goods and services, which it buys in markets, Consumers benefits from the goods and services that the government produces provide and purchase. Although they pay tax such as income tax, VAT and excise duties they also gain by selling their factor service and products to the government. Government regularly borrows from the private sector (enterprises and individuals) and from abroad in order to balance its budgets. Foreign sector The foreign sector as both a source and destination for goods, services, savings and loans. South Africa imports many machines, equipment and intermediate goods (capital goods) from abroad, with it while it exports primary, minerals and intermediate goods to the foreign sector. Most of these imports and exports are made by producers therefore they enter in the circular flow through producers platform. The remuneration earned from this process is called foreign exchange which is needed to pay for imports the foreign exchange market is located in financial system. Leakage and injections The real and money flow in the circular flow are not always smooth and without interruptions. For example, same of consumers where they are consumed, they may become part of inventories and are restored somewhere in the system or they may be exported. The major problem, nevertheless, is in the money flow. Some money tends to leak out from the flow, as a result of saving and taxes for example sometimes new money enters the revenue from export. In order to explain the leakages and injections to the circular flow we need to extend our assumptions on market in the circular flow to also provide foe financial system. This system is enriched in the factor market, when its basic faction is to focus on the remuneration for the sector service of capital in the form of interest dividends. The financial market consists of variety of markets, such as the capital market, money market and foreign exchange market. Deposited taking institution such as banks and non deposited taking institution such as insurance company act as financial intermediaries in this market. Through their activities the savings of the consumers, producers and the government are made available as loans to others. The central bank in South Africa, the South African reserve bank (SARB) is the primmest institution in this system. Leakages Savings (s) is the income that the participants chose not to spend but to keep aside for future use. Savings will normally flow to the financial institution (intermediaries), which are shown in the middle of the diagram. Saving flow from consumers and producers to the financial system. What is important however, is the amount of net savings borrowings (loans) by households. The balance is that amount that leaves circular flow. However, if households borrowings exceed savings, the money component in the circular flow increase. The circular flow then becomes negative (indicated by minus). These my results in price increase caused by inflation Conclusion An economic is that factor in life that, it affects everyone in every different way either aware or unaware, negatively or positively, acceptingly or unacceptingly one thing certain is that we are all affected, from individuals who are forced to sometime to make hard decision in trying to satisfy their needs with the scarce or limited resources. As consumers we are faced with a challenge of making choices which may mean our survival or leaving to see other day, most of consumers will have to make a choir either to consume the available money on basic need or rather consume it today in something that they will benefits from tomorrow and get reworded so that the advantages of making choices are not limited. For example, one would have to make sacrifices and hard choices to save money for their children school so that can be able to go and an education so that they will be educated and be able to afford some of the things they sacrificed today. Firms and producers also are not immune in making choices, not only choice that are only for their benefit but the benefit of the consumers, the benefit of other firms or other producers and the entire economy of the country. The idea of stating your own business is to make profit, to be able to make decisions that are for self and your business for a better tomorrow, but most business owners find it hard that sometime if not most of the time they are forced to make decisions that they have not planned for, because of the activities in the economy which may affect most if not the entire business. For example, when government decide to increase price in some of the goods that are mostly the source that allows that daily activities to happen with no hustle (petrol and diesel, paraffin and gas) that means production will be affect and the business will affect and the consumers will suffer from high price, unaffordable good which some of them are especial for leaving or survival. The consumers, the firms (producers, financial institution like banks and other private financial providers and government must work hand in hand to make the economy better and to be able to attract investors from the other countries other market so that south African economy can be able to compete with other economies of the other developed countries and the economy of the hole world. PAGE MERGEFORMAT 1 Page Windows User Email address NAME DALUXOLO ZUMA STUDENT NUMBER 202017012 REAL ESTATE Property Economics Finance 2 Individual Assignment
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