Question

Tina walks into Ted's sporting goods store and buys a punching bag for 100 dollars . That 100 dollars payment counts as _____ for Tina and _____ for Ted. a. Income; expenditure. b. Value added; multiple counting. c. Expenditure; income. d. Rents; profits.

Short answer

The answer is c: Expenditure for Tina, income for Ted.

Step-by-step solution

Understanding the Context

We need to determine the economic roles attributed to Tina's and Ted's actions in the transaction. Tina is purchasing a punching bag for herself, while Ted is selling it as part of his business activities.

Identifying Tina's Economic Activity

When Tina buys the punching bag for $100, she is spending her money to acquire a good. Economically, this action is classified as 'expenditure' because it represents a consumption expenditure by Tina.

Identifying Ted's Economic Activity

Ted receives $100 for the punching bag he sells, which increases his financial resources. Economically, this is considered 'income' because Ted is earning money from selling a good.

Matching with Answer Choices

Now, we match our understanding with the provided choices: - a. Income; expenditure. - b. Value added; multiple counting. - c. Expenditure; income. - d. Rents; profits. The correct pairing should be Tina's expenditure and Ted's income.

Key concepts

Consumption Expenditure

When we talk about consumption expenditure, we are referring to the act of spending money on goods and services. It is essentially what individuals and households do when they buy things they need or want. In Tina's case, when she buys a punching bag for $100, this is considered a consumption expenditure. She is using her income to purchase a product, which is a sporting good in this case.

Consumption expenditure is a crucial part of the economic flow, as it helps drive demand for products and services.

• It indicates the flow of money from consumers to sellers.
• Stimulates economic growth by encouraging production and sales.
• Reflects consumer confidence and economic health.

Without such expenditure, businesses would struggle to thrive as there would be no demand for their goods and services.

Income

Income represents the money individuals or businesses receive in exchange for their labor, products, or services. For Ted, the owner of the sporting goods store, the $100 he receives from Tina is his income. He earns this money as a result of selling a good, which is the punching bag in this transaction.

Income is an essential part of managing financial health for both individuals and businesses.

• It is used to cover expenses and necessities.
• Helps businesses to sustain operations and possibly expand.
• Allows individuals to save or invest for future wants or needs.

Income transactions keep the economic cycle going by facilitating consumption and enabling production.

Goods and Services

Goods and services are the products and activities that satisfy human wants and needs. In our example, the punching bag is a physical item, classifying it as a 'good'. Goods are tangible objects like food, clothing, and electronics that we can touch or see. Services, on the other hand, are intangible and involve tasks performed by individuals or companies.

Understanding the role of goods and services is crucial:

• Goods fulfill physical needs, while services often satisfy non-material needs.
• Together, they make up the offerings of businesses aiming to meet consumer demands.
• These transactions drive the economy by having consumers pay for what they need and want.

In economic terms, both goods and services are essential for nourishing the lively market exchanges.

Business Activity

Business activity involves all the actions that companies or individuals take to produce, buy, or sell products and services. Ted's business activity includes stocking his store with products like punching bags and selling them to consumers like Tina.

Key aspects of business activity involve:

• Offering products that meet consumer demand—like sporting goods.
• Generating income through sales and customer transactions.
• Contributing to economic growth by providing employment and services.

On a broader scale, business activity fuels the economic engine by driving innovation, creating jobs, and crafting networks between buyers and sellers.