The history of Ana and Ivan
Ana and John got married some months ago. John works in a garage and
Ana works in a software computer company. Thanks to their work,
they help to produce goods and services. Ana and John go
working to earn money.
And every time they will consume: buying goods and services
and spending money as a circle without end...
Together they have an income of 200 EURO per month. This seems a lot
but young people need a lot also.
What do they need:
- they need bread, meat, shoes, soap, clothes, ...
- they have to pay the bill for electricity, telephone, ...
- sometimes they want to go to the movie
Wants can be so different:
To fulfill our needs, we must make choices continuously.
Basic vs other needs
- basic needs: needs that they have to fulfill to survive
- other needs
Material vs non-material needs
- material needs
- non-material needs: needs that cannot be bought with money (e.g. peace,
love, justice, safety, ...)
Prosperity and welfare
- In the way we can fulfill our material needs by sufficient goods and
services, we have a certain degree of prosperity.
- When we manage to fulfill our non-material needs, we can reach a certain degree
Individual vs collective needs
- The needs are not the same for every person. Each individual has his
own specific desires or needs. These are called individual needs.
- But there are also needs by groups of people: collective needs.
Ranking of importance in needs
- Basic needs = Primary needs
- Cultural needs = Secondary needs
- Luxury needs = Tertiary needs
- Needs created by publicity = Artificial needs
- Needs = the total of what we need, what we want to have
- Satisfaction of needs = fulfilling our needs
- Buying = Purchasing everything you need to fulfill your needs
Goods and services
Goods and services are all the valuable things that people produce.
- goods are tangible
- services are intangible
Capital goods vs consumption goods
- Capital goods
- goods that are used in the production process
- and can be used many times before they actually wear out
- Consumption goods
- goods that can be used only once
Consumption and production
- Consumption is the process of using up goods and services.
- If we can buy goods and services, than there must be somebody else who
produces and sells.
Trade is the buying and selling of goods and services.
Households, companies and the economic cycle
Ana and Ivan are working in companies. But they are also parts of a
household. Households and companies are two main notions in economy.
The interaction between households and companies can be made clear in a
scheme, named the economic cycle.
In that scheme, we can distinguish 2 streams:
- the money stream
- the goods and services stream
A household is any group of people living together as a decision-making
unit. Every individual in the economy belongs to a household. Some
households consist of a single person, while others consist either of families
or groups of unrelated individuals (e.g. students sharing an apartment).
Each household has:
- unlimited wants and needs
- limited resources
A firm is an organization that uses resources to produce goods and
services. All producers are called firms. Car makers, farmers,
banks, ... are all firms.
The economic cycle
Situate these economic activities in the economic cycle:
- Mother pays bread in the bakery.
Paul works as a waiter in a restaurant.
Jack receives an income from a company.
The milkman delivers eggs at home.
- Victor is still studying.
During the summer holidays he worked a month in a garage.
At the end of the month, Victor received his money.
What do you think Victor did with the money? He bought a motorcycle in