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2. Firms/Industry:
1.
2.
3.
4.
5.
No inventory.
Make factor payment R, w, i and p.
Y=FP
FP= R+w+i+p
Y R+w+i+p
Household Expenditure:(E)
Firms Supply of goods and services (Z)
Identity:
YV
E=Y
Y=V
Means
Households income (Y) Factor Payments (FP) Money Value of
Goods and Services (V)
So
Y FP V
8
All saving are made by households and entered to the firm through financial
markets,
So, S=I
10
12
14
16
Withdrawals
Imports are withdrawals as they
reduces the income of the households
Injections
Exports are injections as they add to
their income
17
Direct Taxes
Government
Revenue
Firms
Spending
Market for Goods and Services
(Goods Flow)
Investment
Savings
Capital Market
Households
Income
Foreign Sector
PPF Example
Producing one computer requires 100 hours labor.
Producing one ton of wheat requires 10 hours labor.
Employment of
labor hours
Production
Computers
Wheat
Computers
Wheat
50,000
500
40,000
10,000
400
1,000
25,000
25,000
250
2,500
10,000
40,000
100
4,000
50,000
5,000
10
PPF Example
Wheat
(tons)
6,000
Production
Point
on
Comgraph puters Wheat
A
500
400
1,000
250
2,500
100
4,000
5,000
5,000
E
D
4,000
3,000
2,000
1,000
0
0
5,000
a. Efficiency
b. Trade-offs
c. Opportunity cost
d. Economic growth
1,500
1,000
Production
possibilities
frontier
500
50
300
400
500
Quantity of
Computesr 22
Produced
11
5,000
1700
1500
300 350
500
Quantity of
Computers Produced
23
24
12
Market for
Goods
and Services
(Goods Flow)
Spending
Firms
Households
Factor payment=Rent,
wages, interest and
profit
Market for
Factors
of Production
(Factor Flow)
Factor Income
Firms
Investment
Inputs for
production
Rent, wages,
interest and profit
Market for
Goods
and Services
(Goods Flow)
Capital Market
Market for
Factors
of Production
(Factor Flow)
Spending
Savings
Households
Land, Labor,
Capital and
Entrepreneur
Income
13
Direct Taxes
Government
Revenue
Firms
Spending
Market for Goods and Services
(Goods Flow)
Investment
Savings
Capital Market
Households
Income
Foreign Sector
14