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RELATIVELY INELASTIC: An elasticity alternative in which relatively large changes in price cause relatively small changes in quantity. In other words, quantity is not very responsive to price. Relatively inelastic should be compared with other elasticity alternatives--relatively elastic, perfectly inelastic, perfectly elastic, and unit elastic.

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Lesson 9: Macro Basics | Unit 1: The Macroeconomy Page: 1 of 16

Topic: An Economy <=PAGE BACK | PAGE NEXT=>

Let's start with a definition:

An economy is an interactive system of production, distribution, and consumption of resources, goods, and services that addresses the basic economic problem of scarcity.

  • Economic functions are divided into four basic macroeconomic sectors:
  1. Household: the consumers.
  2. Business: the producers.
  3. Government: the regulators and taxers.
  4. Foreign: the others.
The household sector of the macroeconomy is everyone in an economy who consumes goods and services.
  • Consumption is the use of natural resources, goods, or services to satisfy wants and needs.
  • In a complex economy, consumption is expenditures by the household sector for the purchase of final goods and services.
  • Household sector is a term that indicates the consuming, wants-and-needs-satisfying population. Everyone in society is included in the household sector.
The household sector is responsible for consumption.

The business sector of the macroeconomy produces the goods and services that are consumed by the household sector.

  • The business sector is responsible for production by combining the four basic resources: labor, capital, land, and entrepreneurship.
  • A business is a method of combining resources for production.
  • While the business sector buys raw materials, intermediate goods, and other things. The most important purchase of the business sector is capital goods, or investment in capital.
The business sector is responsible for capital investment.

The government sector affects resource allocation and production by imposing laws and regulations that force decisions not otherwise made.

  • Three levels of government: Federal, State and Local.
  • The government sector collects taxes and buys a share of the economy's production, termed government purchases. These are goods such as national defense, highway and street construction, education, and police protection.
  • Government purchases do not include transfer payments (Social Security benefits, welfare or unemployment compensation).
The government sector is responsible for government purchases.

Economic activity is divided into domestic, everything within the political boundaries of a nation, and foreign, everything outside the boundaries.

  • Any citizen of the U.S., any firm owned by a U.S. citizen, and the government of any U.S. city are part of the domestic economy.
  • Any resident, business or government of another country is part of the foreign sector.
  • Exports are goods purchased by the foreign sector that are produced by the domestic economy.
  • Imports are goods purchased by the domestic economy that are produced by the foreign sector.
  • Net exports are the difference between exports and imports, or exports minus imports.
The foreign sector is responsible for net exports.

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GOVERNMENT BORROWING

The acquisition of funds through the financial markets by the government sector which are used to finance government expenditures. In terms of the simple circular flow model, this is one of two basic demands for household saving diverted into financial markets. The other is investment borrowing. Government borrowing is also one of two methods of financing government expenditures. The other is taxes.

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Today, you are likely to spend a great deal of time looking for a downtown retail store seeking to buy either looseleaf notebook paper or a three-hole paper punch. Be on the lookout for letters from the Internal Revenue Service.
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The average length of a "business lunch" is about 36 minutes.
"Good humor is a tonic for mind and body. It is the best antidote for anxiety and depression. It is a business asset. It attracts and keeps friends. It lightens human burdens. It is the direct route to serenity and contentment."

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