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Economic Factors - Closed and Open XSystems, Inner and Outer Flows, Leakages and Injections

- Define and explain a closed system and provide an example.
- Define and explain an open system and provide an example.
- Explain the inner and outer flows of a closed system.
- Explain the inner and outer flows of an open system.
- Define and explain leakages in an open system.
- Define and explain injections in an open system.
- Provide an example of a leakage, describe it and explain it.
- Provide an example of an injection, describe it and explain it.

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Let me give you the basics here. But, just to give you your money's worth, I'll explain further than the questions permit. I'll give plenty of examples to guide you.

Define and explain a closed system and provide an example.

A closed system is a mutual collage of relations that form a coherent unit. This unit does not interact with anything outside it. In general, it is only a theoretical construct not existing in reality. The second diagram below gives the simplest proof of the non-existence of a closed system in both science and economics. I suppose that the global economy might be considered a closed system, since all economic actors are included there. Yet, solar power for electricity might show extra-earthly economic value creation. In terms of economics, North Korea is as close to a closed system as you can get. Even with them, they trade a bit with China and Russia, and on occasion, with Central Asia.

Nevertheless, if we wanted to give an account of the relations between households and firms, then we would postulate a closed system for the sake of the model. We would deal only with companies producing commodities and households consuming them.

Define and explain an open system and provide an example.

An open system is a group of relations forming a whole. This whole, however, takes ...

Solution Summary

The expert defines and explains a closed system and provides an example. Leakages in an open system are provided.

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