Lesson Notes By Weeks and Term v5 - Grade 7

Lesson Video

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Performance objectives

• Define key economic terms.
• Create a simple income and expenditure statement.
• Explain the circular flow of the economy.
• Differentiate between needs and wants.
• Describe Sole Proprietorships and Partnerships.

Lesson summary

This week, we're diving back into the core concepts we've covered so far in Grade 7 EMS. This isn't just about remembering; it's about solidifying your understanding so that you can confidently apply these ideas in real-life situations, whether you're managing your pocket money, thinking about starting a small business, or understanding how the South African economy works. Think of it like building a house – a strong foundation (your understanding) is essential for a structure that lasts. We'll be revisiting topics such as basic accounting, the economic cycle and needs versus wants.

Lesson notes

2.1 Basic Economic Concepts: Needs vs. Wants, Goods vs.

Services Needs: These are things essential for survival. Without them, you cannot live a healthy and safe life. Examples include food, water, shelter, and basic clothing.

Wants: These are things that you would like to have but are not essential for survival. They improve your quality of life, but you can live without them. Examples include a new cellphone, designer clothes, and going to the movies every week.

Goods: These are tangible (physical) items that satisfy needs or wants. You can touch and own them. Examples include bread, shoes, and books.

Services: These are intangible (non-physical) activities that satisfy needs or wants. Someone performs a service for you. Examples include a haircut, medical care, and education.

Why it's important to differentiate: Understanding the difference between needs and wants is crucial for making wise financial decisions. If you prioritize your wants over your needs, you might run out of money for essential things.

Example: Imagine you receive R200 for your birthday. Your needs might include buying bread and milk for your family. Your wants might include buying a new video game. Prioritizing your needs means you'll first buy the food and then, if you have money left over, you can consider the video game. 2.2 Basic Accounting: Income, Expenses, Profit, and Loss Income: Money received, usually as a result of work, business activities or investments. In a household, this can be salaries or wages. For a business, it's revenue from selling goods or services.

Expenses: Money spent on goods or services. In a household, this could include groceries, rent, transport and entertainment. For a business, this includes the cost of raw materials, salaries, and rent.

Profit: When income is greater than expenses. This is what businesses aim for. Profit = Total Income – Total Expenses Loss: When expenses are greater than income. This is not desirable for businesses or households. Loss = Total Expenses – Total Income

Example: Let’s say Sarah runs a small business selling vetkoek at the local market. In one week, she sells 100 vetkoeks at R5 each. Her total income is 100 * R5 = R

5

0

0. Her expenses include flour (R100), oil (R50), and sugar (R20). Her total expenses are R100 + R50 + R20 = R

1

7

0. Therefore, her profit is R500 - R170 = R

3

3

0. Another

Example: If Sarah had sold only 40 vetkoek she would have earned 40 * R5 = R

2

0

0. Her expenses remain R

1

7

0. Her profit would then be R200-R170=R

3

0. Income and Expenditure Statement

Example: | Item | Income (R) | Expenses (R) | |-------------------|------------|-------------| | Vetkoek Sales | 500 | | | Flour | | 100 | | Oil | | 50 | | Sugar | | 20 | | Total | 500 | 170 | | Profit/Loss | 330 | | 2.3 The Circular Flow of the Economy The circular flow model illustrates how money, goods, and services move between different sectors in the economy.

The main players are: Households: Provide labour to businesses and consume goods and services.

Businesses: Produce goods and services and pay wages to households.

Government: Collects taxes from households and businesses and provides public services (like schools, hospitals, and roads).

How it works: Households provide labor to businesses, earning income (wages, salaries). Businesses use this labor to produce goods and services, which they sell to households. Households use their income to buy these goods and services. The government collects taxes from both businesses and households and uses this money to provide public services, benefitting both.

South African example: A teacher (household) works at a school (government). They earn a salary. The teacher then uses their salary to buy groceries from a supermarket (business). The supermarket pays taxes to the government. The government uses those taxes to maintain the school where the teacher works. 2.4 Types of Businesses: Sole Proprietorship vs.

Partnership Sole Proprietorship: A business owned and run by one person. The owner receives all the profits but is also personally liable for all the debts of the business.

Advantages: Easy to set up, the owner keeps all the profits, and decision-making is quick.

Disadvantages: Unlimited liability (the owner is personally responsible for all business debts), difficulty raising capital (money), and the business's life is tied to the owner's.

Partnership: A business owned and run by two or more people (partners) who share profits and losses according to an agreement.

Advantages: Easier to raise capital (more partners contribute money), shared responsibilities, and a wider range of skills and expertise.

Disadvantages: Shared profits, potential for disagreements between partners, and unlimited liability for all partners (unless it's a limited liability partnership, which is less common in small setups).

Example: Zola decides to start a small tuck shop at his school. He uses his savings to buy sweets and snacks. This is a sole proprietorship.