The spendthrift economy, Managerial Economics

Assignment Help:

The Spendthrift Economy

This assumes a circular flow of income in a closed economy with no Government sector and no foreign trade.   It also assumes the existence of two sectors, namely the sector of households and the sector of firms.  Firms make the commodities that households consume.  They purchase the services of factors of production from the household that own them, paying wages, rent, interest and profits in return, and then use the factors to make commodities.

It is assumed firms sell all of their output to households and receive money in return.  All of the money received is in turn paid out to households.  Part goes to households that sell factor services to firms, and the rest is profit paid out as Dividends to the owners of the firm.  In short, neither households nor firms save anything in the spendthrift economy; everything that one group receives goes to buy goods and services from the other group.  Expenditure is the rule of the day!

1689_spendthrift economy.png

Now, suppose we wish to calculate the Total Value of the economy's output.  We can do this based on either side of the circular flow shown in the figure above.  The output-expenditure approach uses calculations based on the flows on the right hand side of the figure, while the input-factor income approach uses calculations based on the flows on the left-hand side of the figure.


Related Discussions:- The spendthrift economy

Managerial Economics, Calculate point elasticity of demand for demand funct...

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

What do you mean by ordinal utility, Q. What do you mean by Ordinal utility...

Q. What do you mean by Ordinal utility? A method of analysing utility or satisfaction derived from consumption of services andgoods, based on a relative ranking of services and

What is difference between monopoly and perfect competition, What is the di...

What is the difference between monopoly and perfect competition? Monopoly versus Perfect Competition: 1. Perfect competition is equal to monopoly competition, at the perfe

Ans, State the difficulties in the measurement of profit.

State the difficulties in the measurement of profit.

Ppf, What is producer surplus? “The more the competition among the sellers,...

What is producer surplus? “The more the competition among the sellers, the less the producer surplus enjoyed by the producers” – do you agree with the statement. Justify your answe

Nominal rigidities versus real rigidities, NOMINAL RIGIDITIES VERSUS REAL R...

NOMINAL RIGIDITIES VERSUS REAL RIGIDITIES    Nominal rigidities are said to exist when nominal prices and wages  do  not change in  the  face  of  conditions that call for thei

State the market demand curve, The Market Demand Curve Quantity of a co...

The Market Demand Curve Quantity of a commodity that an individual is willing to buy at a particular price of the commodity during a specific time period, given his money incom

Advantages of a free market system, Advantages of a Free Market System ...

Advantages of a Free Market System Incentive:   People are encouraged to work hard because opportunities exist for individuals to accumulate high levels of wealth. Choice

1, critically analyze the firm''s theory of profit maxmization

critically analyze the firm''s theory of profit maxmization

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd