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

Determine the concepts of demand, Determine the concepts of demand ...

Determine the concepts of demand Demand always mentions to demand at price. The term 'demand' has no meaning unless it is related to price. For example, the statement, 'the

Borrowing facilities internationally, Borrowing Facilities If a countr...

Borrowing Facilities If a country's currency is not convertible, it can borrow from countries whose currencies are convertible and use the convertible currencies to make its i

Determine Optimal Price, Determine Optimal Price, Quantity and Economic Pro...

Determine Optimal Price, Quantity and Economic Profit A firm has a demand function P = 200 – 5Q and cost function: AC=MC=10 and a potential entrant has a cost function: AC=MC=20

Marris’ Growth Maximisation Model, #question.Constraints of Marris’ Growth...

#question.Constraints of Marris’ Growth Maximisation Model

Demand forecasting, what is the importance of demand forecasting to manager...

what is the importance of demand forecasting to managers

Define the pragmatic managerial economics, Pragmatic Managerial economics ...

Pragmatic Managerial economics  Managerial economics is pragmatic. In pure micro-economic theory, analysis is performed, based on certain exceptions, which are far from reality

Concepts of elasticities in making decisions, Question 1: "Anyone who i...

Question 1: "Anyone who is willing to learn the language of economics and take the time to practice making decisions can learn to be an effective manager." Explain how. Qu

Implications for the shape of cost function, Q. Implications for the shape ...

Q. Implications for the shape of cost function? A cost function is also a mathematical relationship, one which relates the expenses an organisation incurs on the quantity of ou

Scarcity and oppotunity cost, how manager can apply scarcity and oppotunity...

how manager can apply scarcity and oppotunity cost in managerial decision making

Wood planks producer show in the market, ChoppinAxe is a little Swedish fi...

ChoppinAxe is a little Swedish firm that produces wood planks and operates in a perfectly competitive market. Each firm in the market has the following total cost function:

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