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EKN120 Summary Notes (Ch11 - Ch15)

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An in depth and detailed summary of the relevant chapters and content covered in EKN120.

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  • June 16, 2024
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EKN 120 - Notes



Chapter 11 - The South African economy, Circular flows and economic
limitations

Role players in the economy

Households - a household may consist of a single person a family or a group of people who live
together, depend on a common income and, within the limits of that income, exercise their choices with
a view to meeting their economic objectives.

The business population

The business population constitutes the second major component of the private sector.

Functional distribution of income - the manner in which national income is divided among the functions
performed to earn it (or the kinds of resources provided to earn it); the division of national income into
wages and salaries, proprietors' income, corporate profits, interest and rent.

Personal consumption expenditure

Durable-good- a consumer good with an expected life of three or more years.

Semi-durable goods- semi durable goods include goods such as clothing, footwear with a longer lifespan
than non-durable goods.

Non-durable good- a consumer good with an expected life of less than three years.

Distinction between firm plant and industry

• Plant- physical establishment
• Firm- business organisations that own plants
• Industry- a group of firms

Legal forms of business

1- a sole proprietorship

2- a partnership

3- a private or public company

Advantages of companies:

- limited liability

- unlimited continuity

The principal-agent problem:

A conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the
detriment of the principals’ (stockholders’) goals.

,EKN 120 - Notes


The government's role:

• Provide legal structure
• Public goods and services
• Private goods (rivalry and excludability)
• Public goods (non-rivalry and non-excludability)
• Quasi-public goods (e.g. education)
• the reallocation process through taxation



role of the foreign sector

• Include all role players
• Open economy
• International trade

Circular flow of the economy

,EKN 120 - Notes


Society's economising problem

Society has a limited or scarce economic resources, meaning all natural, human, and manufactured
resources that go into the production of goods and services.

Resource categories (factors of production):

- Land

- Labour

- Capital

- Entrepreneurial ability

The importance of entrepreneurs:

• Entrepreneurs take the initiative in combining resources to produce a good or service
• Entrepreneurs make the strategic business decisions that set the course of an enterprise
• Entrepreneurs innovate
• Entrepreneurs bear risk

Production possibilities model assumptions:

• Full employment
• Fixed resources
• Fix technology
• two goods



Production possibilities table: Production possibilities graph:

, EKN 120 - Notes


Optimal Allocation of resources (MB = MC):




Chapter 12 – Measuring Domestic Output and National Income

national income accounting - The techniques used to measure the overall production of the economy
and other related variables for the nation as a whole.
Purpose of National Income Accounting:
• Assess the health of the economy by comparing levels of production at regular intervals.
• Track the long-run course of the economy to see whether it has grown, been constant, or
declined.
• Formulate policies that will safeguard and improve the economy’s health.


Gross Domestic Product (GDP) - The total market value of all final goods and services produced in a
given year within the borders of the country (Citizen-supplied or foreign-supplied resources employed
WITHIN the country).

Gross National Income (GNI) - The total market value of all final goods and services produced in a given
year by the residents or registered business from a particular country anywhere in the world.
It is ownership-based and includes also what is earned abroad and repatriated by residents.

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