The Relationship between Households and Firms

Topics: Economics

Factors of production are land, labour capital and entrepreneurship. Families are the proprietors of factors of production and the houses are users of factors of production. Firms use families ( factors of production ) to pay factor incomes which is rent, rewards, involvement and net income. Firms will utilize factor of production to bring forth end product in the manner of goods and services, which will be purchased by the family. In this manner family incur their outgos.

2.0 Body

Round flow diagram is the ocular theoretical account of economic system which shows how money flows through the markets among family and houses.

Circular flow theoretical account consists of four separate theoretical accounts which each consecutive adding sectors or markets and besides therefore supplying the greater complexness and pragmatism. The four flows are flow factors of production from families to houses, flow of incomes from houses to household, flow of end product of goods and services from houses to families and in conclusion flow of outgos from families to houses.

2.1 Round Flow Diagram hypertext transfer protocol: //

Above round flow diagram divides the economic system into two sectors which is one concerned with the bring forthing goods and services, and the other with devouring them. All the four flows which has been stated as been illustrated in the round flow above. In the diagram the outer flows of incomes and outgos are flows of money and the interior flows of factors of productions and end products are the flows of goods and services.

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2.1.1 Families

Families have the chief map because they are the workers and besides consumers. So they provide labour to houses and compensated with rewards from the houses. Other so that as consumers they besides buy goods and services from houses which constitutes as consumer outgo.

2.1.2 Firms

Firms are the manufacturers of goods and services. Labour and capital is the input of the production procedure. Labour comes from families where rewards are paid and the capital investing can be funded either by maintained net incomes or borrowing from the fiscal sector.

2.1.3 Relationship between Households and Firms

In a day-to-day life illustration we are consumers who are working for a house to gain rewards. Because we working for the company the company makes net income and increase their production in their goods and services. When we are the families we receive rewards from houses and we use it to purchase goods and services produce by houses.

3.0 Withdrawals and Injections

Withdrawals take topographic point when there are motions of financess out of the round flow in income. The three of import things in backdowns are Savings ( S ) , Taxation ( T ) and Imports ( M ) . In Savings families wont be spent all the factors income received on the current or even immediate ingestion. Households besides prefer to maintain some for future or deferred ingestion. For illustration families make their economy in the signifier of sedimentations at fiscal establishments such as Bankss.

Tax is where families have to pay to the authorities as revenue enhancements from their income. For illustration when family receive their rewards their will be a tax write-off column as their income revenue enhancement. Imports is where families willing to purchase goods and services from abroad instead than devouring domestically produced goods and services.

An injection takes topographic point when there are motions of financess into the round flow of incomes. The three of import things in injection are Investments ( I ) , Government outgo ( G ) and Exports ( X ) . In Investments families saved income which was deferred ingestion there are subsequently invested back in the round flow/economy. In authorities outgos authorities use all the revenue enhancements received from families and so it ‘s creates in flow of financess back into the round flow. For illustration authorities outgo includes route edifice, building and more. Government use the sum revenue enhancements which had collected from family to construct route, infirmary, edifices and other. In exports houses may sell some of their goods and services to foreign states. In the economic system outgo from the foreign states by aliens becomes an injection.

3.1 Withdrawals and Injections diagramUntitled.jpg

4.0 Entire Withdrawals equal with Entire Injectionsmmmm.jpg

In the footings of the expanded handbill flow of the income theoretical account the province of equilibrium takes parts when the entire backdowns that occur in the economic system. It can be proven as:

Savingss + Imports +Taxes = Investment + Government Spending + Exports


S + M+T = I + G + X

5.0 Decision

Families and houses has a really strong relationship where each and another can non be work with one. Households need rewards so they have to work for houses and houses need to bring forth goods and services, so they need family to work and besides purchase their goods and services.

Question 2

1.0 Introduction

The fluctuations in the degree of the economic sciences activities of a state over clip are frequently be the best illustrated by the Business Trade Cycles. Business trade rhythm is besides known as the periodic fluctuation in the rate of the economic activity as it been measured by degrees of employment, monetary values and besides production.

2.0 Body

The four chief constructs in concern trade rhythms are full employment, unemployment, recession and rising prices. Full employment takes topographic point at the degree of economic activity when all available at factors of production are to the full utilised. In the concern trade rhythms, there is upward swings and besides downward swings. The periods of hardship are alternate with the periods of concern prosperity. Every roar is followed by a frailty versa and besides a slack. This concern trade rhythm is merely means that the whole class of trade or even concern activity which is base on ballss through all the stages of prosperity and besides hardship.

3.0 Business Trade Cycle Diagram mk.jpg

3.1 Phases in Business Trade Cycle

Economists really divided the concern rhythms into two chief stages which is depression and recovery so roar and slack. Boom and slouch grade turning points in the rhythms.

3.1.1 Depression

In this stage, the whole economic system will be in depression manner and the concern is at the lowest phase. Other than that the general buying power of the community is really low. In the productive activity, both production of consumer goods and the production of capital goods are at the low degree. There are some of the chief features in depression. Depression makes the sum of production and trade psychiatrists. It is besides increases unemployment and the overall monetary values become lessenings. All the net incomes and rewards lessenings and the income of the community autumn at a really low degree. Other than that aggregative outgo together with the effectual demand besides goes down. For illustration if a house having a new investing or replacing investing they will do it detain every bit long as they are possible to travel for it. Other than that in stock markets the monetary values of all portions and securities will be fallen to a really low degree. Even in practically all the building activity no affair in edifices or machinery comes to an terminal.

3.1.2 Recovery

Recovery is besides known as enlargement. In this stage the depression period comes to an terminal. In recovery stage all the economic state of affairss become favorable. As money become cheap it makes the other stuffs and besides factors of production easy and inexpensive. Here the aggregative demand becomes low aggregative supply. Other than that the productive activity besides has been increased and the enterprisers besides have sufficient fiscal backup. This makes the farther investing and production increased. For illustration when a building company ends all their undertakings in depression stage, now the same company will get down having orders and using more employees to make more income and employment. Last the whole economic system will be traveling faster towards the roar stage.

3.1.3 Boom

Boom is besides known as peak stage and it is a turning point in trade rhythm. This stage is the highest point in economic recovery. In this stage there is a big figure of production and besides trade. There is besides a high degree of employment and besides the occupation chances in limited sum to allow a good trade of labour mobility. Aggregate Demand will be equal with Aggregate supply. Overall it makes the monetary values rise. Other so that it besides makes a lifting construction in involvement rates so so a bullish inclination regulations makes stock exchanges. For illustration when a building company starts to do more net income and inverse more the will better their concern and may necessitate more employees. So so it makes the company offer more employment and it besides makes the company get high degree of investing.

3.1.4 Recession

Recession is the crisp slow down in the economic activity, but little different from depression which is more terrible and besides pronged downswing. Aggregate demand is low so aggregate supply. As the depression created the conditions of recovery, it is likewise and the roar conditions generate their ain cheques. All the idle factors have been employed and besides farther demand must raise their monetary values, but the quality is besides inferior. In this stage there should be less efficient workers which have been taken for higher rewards. The involvement rates will lift and besides other stuffs. Finally the costs have started to upward swing.

4.0 Decision

Macroeconomicss is chiefly associate to the balance between Aggregate Demand and Aggregate supply in the whole economy/country. If the aggregative Demand becomes higher than Aggregate Supply the extra demand will be cause rising prices. If the aggregative Demand becomes lower than aggregative supply, so the deficient demand will do recession and unemployment.

Question 4

1.0 Introduction

In economic sciences, the individual who is able and besides willing to work but unable to happen a paying occupation is considered as unemployed. Unemployment divided into two which are long term and short term unemployment. Long term unemployment is by and large considered as the great societal immorality and short term unemployment is merely for a limited clip in the degree of cost. In long term the cost are really high which is non same with the short term where the cost are comparatively low. In short term many of them will lose some of their net incomes, although a few who receive the big redundancy payments may profit in financially from holding lost their occupation.

2.0 Body

The cost of unemployment includes the fiscal cost, personal cost, social cost, economic cost and besides cost to the authorities. All the cost of unemployment is one of the large disadvantages where will do a really large jobs. Because of being unemployment, it is non merely impacting the individual as it is besides impacting the milieus of the unemployed individual.

2.1 Cost of unemployment

2.1.1 Fiscal Cost to the Unemployed Person

This is one of the direct costs due to the lost in their net incomes, measured as the difference between the old pay and current unemployment benefits. One obvious cost is the loss of income which could be earned by the individual been in a occupation. Offset against this is the value of any benefits which could the worker might have and any value placed on the excess free clip which an unemployed individual has at his/her disposal. For most of the unemployed it is likely that they will be one of the net fiscal also-rans. For illustration when a individual now working for RM1500 wage for 8 hours and his friend working for RM2500 wage for 8 hours so he besides will get down to mensurate the differences and he will vacate his current occupation to acquire his friend occupation. At that clip he merely vacate his occupation without know whether there is still empty topographic points at his friend company or non. This state of affairs makes him to be unemployed for some clip and besides make him face troubles in fiscal affairs during that clip.

2.1.2 Personal Cost of being Unemployed

The cost of unemployed is non finish until at that place. It is besides affect the self-pride and the spirit of the persons. The long clip as they are unemployed it may ensue in stress-related unwellnesss, societal jobs like smoke, intoxicant. Drugs, offense like petit larceny and serious and besides excess. For illustration when a individual is been unemployed for some clip he will decidedly experience depresses and he will get down to acquire himself into the societal jobs like smoke and taking drugs or intoxicant. Other than that their depression besides makes them perpetrate self-destruction and mental instability. Areas with high unemployment tend to go in run down status. Shops run down after their concern. Households do n’t hold any trim money to look after their belongingss and besides their gardens. At last this makes the additions in hooliganism and farther destroys in the environment.

2.1.3 Social Cost of Unemployment

Some of the grounds suggests that many of the unemployed people and their households suffer in a figure ways. As thirster they are unemployed the higher it affects their households and friends. This state of affairs leads to the domestic force and separation, abandoned families/children and besides excess. For illustration, in a household when the hubby has been unemployed for long clip so the household will be holding troubles in fiscal affair. He will be holding troubles to gain money, purchase food markets, even he can non back up for his kids surveies besides. This makes the hubby and married woman have misunderstand and eventually its terminal with separation and divorce.

2.1.4 Economic Cost due to lost of national output/growth.

In the existent lose to the whole economic system foremost there is the loss of all the end product which those workers now unemployed could hold been produced if they been in work and the economic system had been produced more goods and services which would had been available for the ingestion. Other than that there are the societal cost like additions in force and depression which are borne by the unemployed and besides the communities in which they live.

2.1.5 Costss to the Government

In one manus, authorities has to pay out higher benefits and on the other manus, authorities losingss gross because all those workers would hold paid revenue enhancements if they had been employed. At last taxpayers non merely pay more revenue enhancements to cover the authorities disbursement, they besides have to pay high because they have to do up the revenue enhancements that all the unemployed would hold been paid if they had been in work.

3. 0 Decision

Cost of unemployment consequence all the portion of a individual life and besides to the state economic system and authorities. To cut down unemployment in society people should make earlier readying or should be good organized about their bearer and nest eggs.

Question 5

1.0 Introduction

The causes of being unemployment will greatly vary harmonizing to the state of affairs whether the individual is working or non. Unemployment can be go on even the individual is presently working, yet had given signal to halt working in some company for some ground. Sometimes it can be voluntary with the individual ‘s pick to go unemployed.

2.0 Body

The causes of unemployment can be divided into two major classs which is equilibrium and disequilibrium unemployment. There are five types of unemployment in equilibrium unemployment and three types in disequilibrium unemployment.

3.0 Equilibrium Unemployment

Equilibrium Unemployment is where can be caused because of people who are economically independent or the rewards are excessively low for therefore people do n’t experience the demand to be employed.

3.1 The causes of Equilibrium/Natural Unemployment

3.1.1 Frictional ( hunt ) Unemployment

It occurs during people leave their occupations like resign voluntarily, made redundant and besides those temporarily unemployed while they are looking for a new occupation. Sometimes employers may be non offering their occupation to the first that applied, as they will seek for other campaigners. This unemployment takes topographic point when both parties do non hold the perfect cognition as they move from one occupation to another. It is cause of stationariness factor which is geographical and occupational stationariness. Geographic stationariness is where labor is unable to relocate to the occupation and occupational stationariness is where labour unable to execute their occupation because of deficiency of cognition, accomplishment or even see For illustration the unemployed will happen a better offer without accepting the first offer.

3.1.2 Structural Unemployment

It takes portion when all the construction of economic system alterations caused by spread outing industries sing growing when other industries are undertaking and besides necessitate to cut down their demand for the labor. This unemployment takes portion because of the alteration in the demand form, which is cause by a alteration in gustatory sensation, manner or even competition from replacements such as produced by other domestic industries or from the imported options. For illustration, there is no more usage and stylish to have on the pelt or the diminution in the coal excavation industry, so so consumers ‘ displacement to alternate beginning of fuel.

3.1.3 Technological Unemployment

Returns portion when the technological advantages resulted in the labour salvaging proficient advancement that allow all the same degree of end product to be produced with lesser units of labor. It is besides frequently caused by the structural employment during the alterations of method in production. The current employee will go excess because of technological unemployment.

3.1.4 Regional Unemployment

The structural unemployment which takes portion within the peculiar part will be doing regional unemployment. For illustration when the diminution in coal excavation industry takes portion it makes the diminution in the coal excavation at the whole part.

3.1.5 Seasonal Unemployment

Takes portion during the demand for labour alterations harmonizing to the clip period. For illustration for a fisherman can non travel to sea if there is rainy/monsoon season, a tourer usher will merely hold work during school vacations or off-peak season and so husbandmans will be unemployed during non-harvesting or monsoon/rainy months.

4.0 Disequilibrium Unemployment

Disequilibrium Unemployment is where normally due to the infliction of the minimal pay Torahs by the authorities which is means there will be higher demand for occupations so the supply.

4.1 The Causes of Disequilibrium Unemployment

4.1.1 Real Wage Unemployment

Returns portion when the trade brotherhoods use their monopoly power to demand pay phase higher than the market phase or even when the authorities sets the national lower limit pay phase higher than the market equilibrium. This can be besides known as “ disequilibrium ” unemployment. The rewards will be besides falls down and could be caused by minimal rewards, or the trade brotherhoods.

4.1.2 Growth in Labour Supply Unemployment

Takes portion during the labour supply go higher without any associated addition in the demand for the labor will do of the equilibrium pay phase to fall below the mean existent pay rate. If the existent pay rate is “ gluey ” downwards so the disequilibrium unemployment will takes topographic point.

4.1.3 Cyclic Unemployment.

This unemployment goes manus in manus with the concern rhythm. As the GDP go higher so the lower will be the cyclical unemployment at the extremum of the concern rhythm and so the frailty versa is besides true when the economic system is in the trough of the concern rhythm. During this clip the houses will be maintain the same degrees of employment and besides end product to construct up their stocks, but it will finally cut back production, ensuing in the unemployment. Once the state economic system out of the recession, so it starts to retrieve, so the employment rates will be starts to lift as the spread between existent end product and the possible end product narrows one time once more. For illustration in a recession when the aggregative demand falls so there will be a autumn in the end product, and hence houses will be employ less workers because they are bring forthing less goods.

5.0 Decision

Other than these causes, there are besides other causes excessively, particularly for immature alumnuss. For illustration when a grade alumnus when a occupation with the basic pay of RM 1500, it will do him/she non satisfied with the rewards compared with their surveies. So so they will make up one’s mind to happen another occupation. This makes them go unemployed boulder clay they find the rite and best suit occupation for them. As the causes of being unemployed is higher people and authorities should be more watchful and they besides should cognize the disadvantages of being unemployed.

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The Relationship between Households and Firms. (2017, Oct 15). Retrieved from

The Relationship between Households and Firms
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