The Operation of an economy

Goods

a good is a physical product capable of being delivered to a purchaser

Service

the service is an intangible act that benefits us.

Factors of Production

a resource that is used to produce a good or service.

natural resources (rent)

Labour (wages)

Capital (interest)

Enterprise (profit)

Factor Market

a market for any input into the production process including capital, enterprise, land, and labour.

Product market

The interaction of demand for supply and the outputs of production, that is the market for goods, and services.

Gross Domestic Product (GDP)

is the total value of goods and services produced in an economy in one year

Market System

the distribution of goods and services is determined by incomes and prices.

income is generated based on the returns from ownership of factors of production

Prices are determined by the interaction of buyers and sellers in the competitive market.

Advantages of a Market economy

it provides motives for people to work hard, take risks, and find better ways of producing

Disadvantages of Market Economy

it can be unfair, businesses can mislead consumers, prices can sometimes provide misleading signals, and in some situations fail to provide goods or services needed.

Role of Goverment

to redistribute income (taxation, social welfare), regulating the behaviour of firms, intervening when markets do not take some of the positive or negative effects of some goods and services into account, and at times providing goods/services that the market does not provide.

Role of Money

enables specialisation in the production process

reduces the inefficiency of bartering

management of the value of money (payments) is the responsibility of the reserve Bank of Australia (RBA)