business + economics

23.2 Participants in the market system

Consumers and producers

• Consumers (buyers) and producers (sellers) meet up in a market.

• This is where trade takes place.

• Markets do not necessarily have to be in person and can be online.

• Producers provide the goods and sellers exchange goods with money

• Everybody is a consumer and people who are employed are also considered consumers

• People satisfy their needs and wants by working to earn a wage

• When people work they are providing labour to contribute to the process of producing goods or services for other consumers to buy

• People are consumers when they are buying goods or services to satisfy their needs or wants

• All the consumers are known as the household sector.

• All the producers are sometimes known as the business sector

• The circular flow of money starts with 

  • the payment of wages or salaries

  • Households (to manage their home)

  • Purchase of goods and services(to satisfy needs/wants)

  • Businesses (which produce goods and services)

  • And repeat

The Financial Sector

• Many people set aside a part of their income towards savings. 

• The savings are usually deposited into a bank or a financial institution

• Banks often receive deposits, which are chunks of peoples savings to invest in a company or business.

What is an entrepreneur?

A person who sets up a business or businesses that either sells products or services

Entrepreneurs take on financial risks in the hope of making a profit.

Can everyone be a successful entrepreneur?

Thousands of businesses in Australia today are owned and operated by all types of people

These businesses all had a beginning, with a person or small group of people who decided to have a go.

NOT EVERYBODY WILL BECOME AN ENTREPRENEUR.

Invention VS Innovation

• Innovation and invention both result in the creation of something unique

• Invention refers to the development of something that is totally new

• Innovation is the process of creating something new or significantly improved, good, service or process.

Innovation VS Business opportunity/Entrepreneurship

Business opportunities

Business opportunities can arise from:

• Recognising and taking advantages of market opportunities

• Identifying changing customer needs

• Technological developments

Who are the participants in the market system

There are 4 main participants in the market system. Consumers & producers, the financial sector, the government sector and the overseas sector

1. Consumers and Producers

• Consumers

  • People who buy goods and services

• Producers

  • They make and sell goods and services

  • Producers pay their employees with money, and also hope to make money themselves out of what they sell. 

• The relationship between businesses and consumers

• Households are the consumers of the products and services produced by the Business.

• Households provide Businesses with the resources (such as labour) that they require.

• Households provide resources to Businesses and earn income (such as salaries and wages). In exchange Businesses produce goods and services which they sell to Households.

• Households provide resources and earn income (such as salaries and wages) in exchange.

• Firms produce goods and services which they sell to Households.

• Resources and goods and services flow one way

• These are called Real Flows because they are physical items

2. The financial sector

• Many people put aside some of their income as savings. 

• This money is usually deposited in a bank or similar financial institution.

• Banks and other financial institutions receive deposits, and use this money to lend out to others who need to borrow money. 

• Most businesses will borrow money, particularly when they need to expand the business.

• Banks and other financial institutions also play an important role in providing credit for households. 

• When consumers make large purchases, such as a house or a car, it is usually easier to borrow the money to pay for these than to save up for years to pay cash for them. 

• Most people take out a mortgage loan when buying a house = borrow money from the bank to pay for the house, and pay back the loan over a long period of time

• The relationship between the amount of money borrowed or lent and the money paid in return for the use of that money.

•  Usually expressed as a percentage per year.

3. The Government Sector

• The Government plays an important role in the market system for a number of reasons:

1. The level of taxation taken by the government can affect the amount of money consumers have available to spend on goods and services. 

2. Money collected in taxes can be spent on providing welfare payments. Such as pensions and unemployment benefits.

3. Government also provides services such as schools and hospitals and these are paid for from taxes 

4. When the government spends money on building roads, schools and hospitals, it is providing money to the businesses that do the actual building, helping those businesses to grow and employ more people.

• The government takes taxes which provides for government spending, pensions, welfare and other services.. Government spending, welfare and other services all directly ink back to businesses and households, respectively. 

• CIvilians pay money to the government in the form of taxes.

• The government uses taxes in 3 main ways

1. Public Services: Taxes support services like healthcare, education, and law enforcement, ensuring citizens have access to medical care, schools, and a safe community.

2. Infrastructure Development: Funds are used to build and maintain roads, bridges, and public transportation systems, which are crucial for economic growth and connectivity.

3. Social Welfare Programs: Taxes help finance welfare programs, unemployment benefits, and social security, providing a safety net for vulnerable groups in society.

• The 3 levels of government which taxes are paid to are:

  • Federal government

  • State/territory government 

  • Local government

4. The overseas sector

• Australia is an open economy, in that we trade goods and services with other countries. Australian businesses export goods and services to both consumers and producers in other countries. 

• Australian consumers buy many products that have been manufactured in other parts of the world and imported into this country.

• International trade effects our country in 3 main ways:

• Australia has a relatively small population, so if overseas consumers are willing to buy the goods and services we produce, this can help our local businesses to grow and employ more people.

• There are some products that we are unable to produce with the same efficiency as can be achieved in other countries. 

• Imported goods are sometimes cheaper than locally produced goods, which can make it difficult for local producers to compete with the imported products. E.g. The car manufacturing industry closed its Australian operations due to lower priced imported products. While local jobs are lost, consumers benefit from cheaper priced cars.

There are 4 main types of markets. Namely retail market, labour market, financial market and stock market.

1. Retail market

   • We are all very familiar with retail markets. These are the markets that allow us to buy most of our goods and services. They include:

     • shopping areas in the central business districts (CBDs) of our large capital cities

     • huge suburban shopping malls such as Chadstone in Melbourne, Westfield Parramatta in western Sydney and Chermside in northern Brisbane

     • local shopping centres with a supermarket and a number of specialty stores

     • shopping strips located along major roads and near public transport hubs

     • the groups of shops gathered in the main streets of country towns and regional centres

     • online shopping websites.

   • Online shopping has become so popular that in 2016 it accounted for 7% of all household spending. It was valued at $20.8 billion — a 14.2% increase on the previous year.

2. Labour markets

   • Prospective employees are hoping to sell their labour to employers. Those employers wish to buythe skills and effort of suitable employees. This combination of buyers and sellers of labour constitutes the labour market.

   • Like many other markets, the labour market does not operate in a particular physical location. The labour market relies on a variety of means of communication between the sellers of labour (potential employees) and the buyers of labour (employers). These allow employers to advertise vacancies in their businesses, and potential employees to find out about job opportunities. The operation of the labour market can involve the following:

     • The simple placement of a sign in a shop or café window indicating that the owner has a job vacancy

     • Newspaper advertisements for job vacancies. This method has declined significantly in recent years, with relatively few vacancies advertised this way today.

     • Online ‘jobs boards’ such as Seek, Indeed and Australian JobSearch. These are the fastest growing source of job advertisements, updated every day. Employers pay a fee to advertise their vacancies, and jobseekers can apply online for the vacancies advertised.

     • Any person receiving unemployment benefits from the government is usually required to take an active role in looking for work. The government pays independent agencies to assist unemployed people to find work. Many of these are run by community organisations and a list of these, including Matchworks and the Salvation Army, can be found on the Australian JobSearch website.

3. Financial markets

• Just as there are a number of markets for goods and services throughout the economy, there is also an important market for money.

• While households earn money in the form of wages and salaries, they will often choose to borrow money to buy larger items such as cars or houses.

• Businesses make money from selling goods and services to consumers, and generally try to make a profit by doing so.

• Sometimes part of that profit will be invested in expanding the business, but if the profits are not large enough to do this, the business may also want to borrow money to help it grow.

  4. Stock market

• The stock market, or share market, is where shares (units of ownership in companies) are bought and sold between buyers and sellers.

• In Australia, this market operates primarily through the Australian Securities Exchange (ASX), formed in 1987 by merging six capital-city exchanges and based in Sydney with offices in Melbourne and Perth.

• The ASX lists over 2000 companies, including major retailers like Woolworths and banks such as ANZ and CBA.

• Share prices fluctuate based on supply and demand; positive company performance tends to increase prices, while poor performance can decrease them.

• Generally, share values rise over time, offering long-term investors capital growth and potential dividends from company profits.

• Shares are typically bought and sold by licensed stockbrokers who conduct transactions on the ASX for a fee.

• Stockbrokers recommend diversifying investments across different companies to mitigate risk; concentrating on one company may lead to losses if issues arise.

• Individuals can also purchase shares directly online through platforms like Commsec and ANZ Etrade, provided they have a bank account and a minimum investment, usually around $600.

• A partnership is an inexpensive and simple form of ownership. It allows the partners to share the responsibility for decision-making, the risks and the workload. The partners can pool their finances and their expertise and there is minimal government regulation. 

• On the other hand, a partnership has unlimited liability. It can be difficult to find suitable partners and disputes between the partners can arise. If one partner decides to leave the business, the future of the business can become complicated.