The Concerns of Economics - Assignment Example

The Concerns of Economics A circular flow diagram that includes the government sector. For this part of your paper, you should include a description of the roles that each participant plays in the economy and how the different sectors interact in the marketsFigure 1 Retrieved from http://www.AmosWEB.comThe circular flow diagram is an important model in macroeconomics as it represents the activities key players in the economy; government, producers, consumers and the rest of the world. It comprises four sectors including business, government, household and foreign as well as three markets; resource, finance and product (AmosWEB LLC, 2013).

The household sector includes all the people who seek to satisfy their needs and wants. They are concerned with consumption and productive resources. The business sector comprises of institutions like corporations, proprietorships and partnerships. These institutions are concerned with combining resources to make goods and services. Their major role is production. The government sector has the ruling bodies of local, federal and state governments. The government plays a vital role in regulation through collection of taxes, passing of laws, and forcing other sectors to do their work.

The government also buys domestic products as their purchases. Additionally the foreign sector is a combination of everything and everyone; governments, households and businesses beyond the domestic boundaries. Its function is to buy exports and produce imports which are calculated as net exports.An illustration of the Production Possibilities model, including a summary of what the model is illustrating and the economic implications for the economyFigure 2Retrieved from http://www.AmosWEB.comA production possibility model is a curve used to analyze alternative combinations of goods that can be produced by an economy within a given time period and with existing technology and resources at that time (AmosWEB LLC, 2013).

Production possibility models are an insight into the basics of economics. For the curve presented above the goods are storage shed and crab puffs. A production possibility analysis is undertaken because it answers the “what” question in resource allocation as scarcity commands that the community has to choose from various goods to produce. It introduces graphical analysis which is essential in interpreting terms like opportunity cost and unemployment. A possibility model illustrates basic concepts in economics.

However, this model assumes that resources and technology are fixed. It does not provide information on desirability and satisfaction of the goods. This is not good for the economy as it might produce a good that is not wanted. The greatest level of consumer satisfaction can not be determined.An explanation of why or why not trade with other countries is beneficial to an economy and how international trade fits into the circular flow diagramCountries trade because they have different human, capital and natural resources and their ways of combining them are different too.

They do not produce the goods efficiently as demanded. This decision to produce services and goods has opportunitry costs which in such cases are the amount of other goods that could have been produced (Economics Online, 2015). It is therefore easier to produce a good with a low opportunity cost and use it to trade with one with a high opportunity cost. The circular flow diagram includes the international trade as open economy countries. Their household spends their income to purchase goods from abroad as imports which is then withdrawn from the circular flow.

Foreign firms and consumers also buy domestic products as exports. An explanation of the difference between micro and macro economics, indicating why the division is necessaryMicroeconomics is the study of sections of the economy, and particular markets. It focuses on individuals and businesses. It is the study of decisions made by these people in reference to resources, and prices (Peter, 2010). It also takes into account taxation and government regulation. Microeconomics gives an insight in supply and demand and various forces that may influence the prices in the market.

Macro economics on the other hand is the study of the economy as a whole. It looks at the phenomenon of the economy like gross national product and how such phenomena affects rate of growth, unemployment, price levels and national income (Peter, 2010). ReferencesAmosWEB LLC. (2013, January 2015). CIRCULAR FLOW. Retrieved from AmosWEB Encyclonomic WEB*pedia: http://www.AmosWEB.comEconomics Online. (2015). Managing the economy: The circular flow diagram. Retrieved from Economics Online: http://www.

economicsonline.co.uk/Managing_the_economy/The_circular_flow_of_income.htmlPeter, F. (2010). Topics in Classical Micro- and Macroeconomics. London: Springer.