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Basic Economics Question

  • 21-10-2008 5:43pm
    #1
    Closed Accounts Posts: 38


    Im confused about calculating national income. There are 3 ways of calculating it apparently; by national income, by national output, by national expenditure.

    My textbook says the following - "When goods and services are produced, people recieve incomes, and thus in theory the addition of all the prices of all the good and services should equal the sum of all the income of the population"

    I dont get this!!!!!! If a guy in a factory makes 10 TV' in a week and they sell for 500 quid each his income is not 5,000?????

    Anyone clarify this for me??


Comments

  • Registered Users, Registered Users 2 Posts: 872 ✭✭✭gerry87


    Imagine a country with 10 people, 1 owns a factory/shop, 5 work in it and 4 people just have some money.

    The factory produces tellys, it produce 4 tellys for 1000 each, and each of the non-workers buy a telly.

    Each person paus 1000 for their telly to the shop, the shop now has 4000. The owner pays it's 5 workers 500 each, and keeps the rest (1500) for himself.

    Now 4000 worth of goods was produced in "the whole" economy which equals 4000 that was spent in "the whole" economy. Also, 4000 was earned in income in "the whole" economy. Even though the workers only earned 500 each. Thats extremely simplified, now add the fact that the factory has to buy raw materials from somewhere and so on...

    You can't think of macro-economics the same as individuals.

    (That analogy is reeeealy cumbersome)


  • Closed Accounts Posts: 38 Audio


    Thanks for that mate. That certainly helps. So you are taking into account the income the company receives from the sales even though the company has to pay for raw materials, wages etc out of that.


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