Interest is a rate of return that represents compensation from the borrower or receiver of funds to the lender or depositor of the funds. When this occurs, the business firm pays interest to the bank for the borrowed funds. For example, money that is deposited by households in a bank savings account might be loaned by the bank to a business that needs to borrow funds to build a new factory or purchase new equipment. Household savings can become financial capital if the money is borrowed by a business firm.
Savings are the portion of a person’s income that is retained or invested for use in the future. When workers receive more income than they spend on the purchases of goods and services, they are able to create savings. White-collar workers are typically paid salaries. Blue-collar workers typically receive wages. A salary is a fixed payment made regularly to a worker in exchange for labor. Wages are the payments made to workers in exchange for labor, typically based upon the amount of time worked or amount of output produced. Labor is an economic resource that every household adult can potentially supply in the markets for resources. Inputs are also called factors of production because they are used by businesses to produce goods and services. The labor, capital, and natural resources that flow from households to business firms are sources of income from the perspective of households and inputs from the perspective of businesses. The monies that flow from business firms to households are expenditures from the perspective of business firms and incomes from the perspective of households. In markets for economic resources, households usually are the suppliers and businesses usually are the demanders. This is illustrated by the counterclockwise flow of money and the clockwise flow of economic resources. In exchange for their labor, households are paid wages and salaries by businesses. For example, when people work for a business, they are supplying their labor as a factor of production. The bottom half of the circular-flow diagram, which represents resource markets, shows that businesses give money to households in exchange for economic resources used as factors of production. The products that flow from business firms to households are sales by the business firms and purchases by household consumers. The money that flows from households to business firms is consumption spending from the perspective of households and is revenue from the perspective of business firms. In markets for products, businesses usually are the suppliers and households usually are the demanders. Money flows counterclockwise, while the goods and services flow clockwise. The top half of the circular-flow diagram, which represents product markets, shows that households give money to businesses in exchange for goods and services. The second type of interaction occurs in markets for products. The first type of interaction occurs in markets for resources. (1) households supply economic resources, such as labor, to businesses in exchange for income, and (2) households use their incomes to buy goods and services produced and sold by business firms. Households interact with business firms it two distinct ways:
Expenses are the total costs of the production of goods or services by a business. Revenues are the monetary income received by a business in exchange for goods or services.
A business or business firm is a company that produces goods or services, usually in an effort to make a profit. A household is a social unit comprised of those living together in the same dwelling. The two types of economic agents in a simple market economy are households and business firms. A simple circular-flow diagram is illustrated in Figure 1. A circular-flow diagram is a visual model of the economy that illustrates how households and businesses interact through markets for products and markets for resources. One model that helps explain how a market economy works is a circular-flow diagram. Economic Model #1: The Circular-Flow Diagram
0 kommentar(er)
