A Nation’s Economy. Economic indicators. (Overview, Unit 3: 3.1, 3.6)

Analyzing a national economy involves many factors, some of which cannot be measured by data. One measure of an economy’s success that helps planners to make prediction about the future of the economy is gross national product.

Economists study different sides of the economy in different ways. Microeconomics is the part of economics that analyzes specific data affecting an economy. Macroeconomics is the branch of the economics that analyzes interrelationships among sectors of the economy.

Microeconomists use various methods to measure the performance of the economy. Statistics measure gross national product, or GNP, which is the value of all goods and services produced for sale during one year. All the goods and services produced must be counted, and their value determined.

First, only goods and services produced during a specific year are counted. Second, not every good or service produced or sold during the year can be counted. For example, if both the flour the baker used and the bread produced were counted, the flour would be added in twice and so exaggerate the gross national product. To avoid this problem, economists count a product or service only in its final form. They count the baker’s flour in its final product form – as a loaf of bread or cake. Products in their final form are called final goods and services. Third, GNP includes only goods sold for the first time. When goods are resold or transferred, no wealth is created.

One way in which economists measure GNP is the flow-of-product approach. Using this method, they count all the money spent on goods and services to determine total value. Each time a new product is sold, GNP increases.

Spending for products falls into four categories. The first, and the largest, consumer spending, includes all expenditures of individuals for final goods and services. The second category includes all spending of businesses for new capital goods. The third category includes spending of all levels of government. The fourth category is net exports of goods and services.

Another way of determining GNP is the earnings-and-cost approach. This method accounts for all the money received for the production of goods and services, it measures receipts. To help predict expansion or contraction of the economy, government economists identified a number of indicators. They fall into three categories: leading, coincident and lagging. Leading economic indicators rise or fall just before a major change in economic activity. The leading indicators include information about the number of workers employed, construction activity, and the formation of new businesses. Coincident economic indicators change at about the same time that shifts occur in general economic activity. Lagging economic indicators rise or fall after a change in economic activity.

5. Markets & Monopolies. (Overview, Unit 1)

In a market economy the actions of buyers and sellers set the prices for goods and services. The prices, in turn, determine what is produced, how it is produced, who will buy it and what will be the mix of consumer and capital goods. Supply, the quantity of a product that suppliers will provide, is the seller’s side of a market transaction. Suppliers usually want the price that allows them to make the most money. Demand, the quantity of a product that consumers want, is the buyer’s side of a market transaction. Buyers want the price that gives them the most value for the least cost.

Whenever people who are willing to sell a commodity contact people willing to buy it, a market for that commodity is created. Buyers and sellers meet in person, or they may communicate by letter, by phone or through their agents. In a perfect market, communications are easy, buyers and sellers are numerous and competition is completely free. In a perfect market there can be only one price for a given commodity: the lowest price which sellers will accept and the highest which consumers will pay. There are, however, no really perfect markets, and each commodity market is subject to special conditions. Competition influences the prices prevailing in the market. Prices inevitably fluctuate, and such fluctuations are also affected by current supply and demand.

Although in a perfect market competition is unrestricted and sellers are numerous, free competition and large numbers of sellers are not always available in the real world. In some markets there may only be one seller or a very limited number of sellers. Such a situation is called a monopoly and may arise from a variety of different causes. It is possible to distinguish in practice four kinds of monopoly.

State planning and central control of the economy often mean that a state government has the monopoly of important goods and services, e.g. most national authorities monopolize the postal services within their borders. A different kind of monopoly arises when a country, through geographical or geological circumstances, has control over major natural resources or important services, e.g. Canadian nickel and the Egyptian ownership of the Suez Canal. Such monopolies can be called natural monopolies. Legal monopolies occur when the law of a country permits certain producers, authors and inventors a full monopoly over the sale of their own products. These types of monopoly are distinct from the sole trading opportunities when certain companies obtain complete control over particular commodities. This action is often called “cornering the market” and is illegal in many countries.

In the market systems, competition answers the basic questions of what, how, for whom and how much. Competition among producers is for the highest profits. Competition among consumers is for the best goods and services at the lowest prices. Obtaining the highest profits and the best goods at the lowest price are the only motives the market system considers.

In a market economy three basic resources – land, labour and capital – are bought and sold for the best price. Market for labour is constantly changing. Producers are in competition with one another to hire the best workers for the lower wages. Workers compete with one another to get the best jobs at the highest wages. Producers’ needs for workers change constantly. Young people train for a career, then, need to consider what types of workers will be needed in future. Planning a career requires careful study of statistics showing which jobs are growing. Further, career planning must include the ability to change with the economy. Workers need to be able to learn new skills to remain competitive in the market.

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