Economics: Unit 2-Chapter 2/5/6: Circular Flow

Circular Flow Model: Represents the flow of money, goods, and services in the economy

Factor Market/Resource Market: Factors of production; we sell our resources to businesses.

Product Market/Goods Market: Where goods and services are bought and sold.

Households: Where a person or group shares an income.

Firms/Businesses: An organization that produces goods and services for sale.

The "Big Picture"

Factor Market: Firms buy. Households sale

Households: Sell Resources, Buy Products

Product Market: Firms Sell, Households buy

Firms/Business: Buy resources, Sell Products

The Government: Both Consumer and Producer in markets

Rest of the World

• Households supply the Factor Market with factors of production (land, labor, capital, entrepreneurship)

• The Factor Market are then demanded factors of production (land, labor, capital, entrepreneurship) from Firms/Businesses

• Firms/Businesses supply the Product Market with Goods and Services.

• The Product Market are demanded Goods and Services from Households.

• Households give consumption expenditures to the Product Market

• The Product Market give revenue to Firms/Businesses

• Firms/Businesses give "cost" to the Factor Market

• The Factor Market give money income (wages, rents, interest, payments) to Households

• The Government gives Goods and Services to both Households and Firms/Businesses

• The Government gives expenditures tot he Product and Factor Market

• The Government receives Taxes from Firms/Business and Households

• The Government receives Resources from the Factor Market

• The Government receives Goods and Services from the Product Market

• The Product Market gives U.S. Exports and U.S. Expenditures to the Rest of the World

• The Rest of the World gives the Product Market Foreign Expenditures and U.S. Imports

If you need some for help or information, visit the following link:

http://www.youtube.com/watch?v=_PKH2wtDT3E