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Firm

Factor Payments interest, Profit, Rent, Wages. Household Income. Resources. Factor Market. Capital, Entrepreneurship, Land, Labor. Taxes. Purchase of goods/services. Households. Household income, interest. Taxes. Firm. Governmen t. Goods and Services. Goods and Services. Purchases.

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Firm

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  1. Factor Payments interest, Profit, Rent, Wages Household Income Resources Factor Market Capital, Entrepreneurship, Land, Labor Taxes Purchase of goods/services Households Household income, interest Taxes Firm Government Goods and Services Goods and Services Purchases Revenue Product Market

  2. HOUSEHOLDS earn income in the form of: • Wages [labor] • Rent [land] • Interest [capital] • Profits [Entrepreneurs who live in • households and start businesses]. • With incomes, households acquire the goods and services they demand in the Product Market.

  3. Households/individuals possess 4 scarce resources /factors of production: 1-LAND: grow crops, mine minerals, catch fish, log forests. Owned by private individuals or households through the private sector. 2-LABOR: work in the production of goods and services Theylive at home and go to work. 3-CAPITAL: technology used to produce goods: computers, factory equipment, tractors for farmers. Provided through our savings of money. 4-Entrepreneurs: start business/firms and also live at home/risk- takers

  4. 10-What is a factor market? Provide examples. • People earn their incomes in factor markets, where the factors of production are bought and sold. • This is where entrepreneurs hire labor for wages/salaries’ acquire land in return for rent and borrow money. • People sell their resources there: land, capital, labor

  5. 11-What is a product market? Provide examples. • People spend the income from the resources they sell in the factor market to the product market. • Producers sell their goods and services and wages and salaries that individuals receive from businesses in the factor market returns to businesses in the product market. • Businesses then use this money to produce more goods and services and try to earn a profit.

  6. It’s all about selling! Households: sell resources in the Resource Market Businesses: sell goods and services in the Product Market Businesses =suppliers/sell Households=demanders/buy goods and services in the Product Market

  7. Households exchange these resources in the Factor/Resource Market Resources flow from households to Firms [businesses] in Factor/Resource Market Firms buy resources/Households sell resources in the Factor/Resource Market

  8. Goals of Businesses and Households in the Marketplace BUSINESSES: maximize profits They must sell goods and services for more than they spend on resources [profit]. Their revenues must be greater than their cost. HOUSEHOLDS: It’s not about the money, which is just a medium of exchange. It is to maximize utility or “happiness.” “Happiness” is achieved through consumption of goods and services. The market is where buyers and sellers meet to engage in a mutually beneficial exchange.

  9. Goals: Households wish to improve their standard of living, so their goal is to earn a high enough income to enjoy a level of consumption of goods and services that improves their family’s standard of living. Firms: Profit

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