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Output Expenditure Model
84
Transcript
Achieving Output Expenditure Balance
- It is ideal for small businesses to attain balance between their output expenditure and consumer demand.
- Equilibrium (balance) in output expenditure means that products are being created at 100% demand and there is no accumulating backlog of inventory.
- An output expenditure model expresses this equilibrium as the total of goods created versus the total number of goods sold.
Consequences
of Low Demand
- Low consumer demand = increase in accumulated inventory(cost the company hasn't recouped)
- Low demand and sales levels may force businesses to scale back their production schedules.
- This can result in fewer hours for employees,and an having increasingly harder time meeting your company's other financial obligations
Relation to Keynesian Economics
- John Maynard Keynes' used the output expenditure model formula to show equilibrium between income and expenditure.
- It can also be used to express demands for goods in relationship to product output.
What is it?
Problems with High Demand
Output Expenditure Formula
- The output expenditure model is a model that shows the cost-demand relationship between your outputs and how much money your business spends.
Formula:
Y = C + I + G + (X-M) = GDP
- This is the description of the equilibrium among all elements within the model. Also its used to identify the way output is used amongst users in the economy.
- Levels of high demand can cause problems if a small business is slow to react.
- During high demand, output expenditure models should show a deficiency in inventory versus consumer demand for the company's products.
- Not increasing inventory levels (by either production cycles or hiring more workers) can cause a small business to lose consumers to competitors.