1. Circular Flow of a Market Economy
Have Notebooks out
Warm up: Why are entrepreneurs needed in the economy?

2. What does an economy look like?

3. Circular Flow of a Market Economy
monetary flow
physical flow
Circular Flow Diagram of a Market Economy
Households
Firms
In a free market economy, households and business firms use markets to exchange money and products.
Households own the Factors of Production (land, labor and capital) and consume goods and services
Firms produce goods by taking inputs (FOP) and turning them into outputs (finished products)

4. Circular Flow of a Market Economy
monetary flow
physical flow
Circular Flow Diagram of a Market Economy
Households
Firms
Product market
Households pay firms for goods and services.
Product Market = the exchange of finished products (G/S) for money
Firms supply households with goods and services.
Factor Market = the exchange of Factors of Production (FOP) for money
Households supply firms with land, labor, and capital.
Firms pay households for land, labor, and capital.
Factor (Resource) market

5. Circular Flow of a Market Economy
Product Market
Firms
Supply the goods and services that they produce to the households
Physical Exchange
Households
Pay the firms for goods and services that they need
Monetary Exchange
monetary flow
physical flow
Circular Flow Diagram of a Market Economy
Households
Firms
Product market
Households pay firms for goods and services.
Firms supply households with goods and services.

6. Circular Flow of a Market Economy
Factor (Resource) Market
Households
Supply the labor (workers) to firms as well as land (resources) and capital (investors)
Physical exchange
Firms
Pay households for labor (salaries) and land as well as paying back investors (profits)
Monetary exchange
monetary flow
physical flow
Circular Flow Diagram of a Market Economy
Households
Firms
Households supply firms with land, labor, and capital.
Firms pay households for land, labor, and capital.
Factor (Resource) Market

7. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>

8. Circular Flow Model Review (Worksheet)
MARKET FLOW
A. Taco Bell just hired you to assemble tacos ________ _____
B. You receive your first paycheck ($68.24) ________ _____
C. You order two tickets online for a concert ________ _____
D. Your tickets arrive by mail ________ _____
E. In which market are households buyers? ________ _____
F. In which market are households sellers? ________ _____
G. In which market are businesses buyers? ________ _____
H. In which market are businesses sellers? ________ _____

9. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>
Taco Bell just hired you to assemble tacos
Market:
Flow:
Resource (FOP)
Household provides FOP (Labor)

10. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>
Taco Bell gives you first paycheck ($68.24)
Market:
Flow:
Resource (FOP)
Business Pay for FOP (Resources)

11. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>
You buy two tickets online for a concert
Market:
Flow:
Product
Household pays for G/S

12. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>
Your concert tickets arrive online
Market:
Flow:
Product
Business Provide for G/S

13. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>
In which market are households buyers?
Product

14. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>
In which market are households sellers?
Resource (FOP)

15. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>
In which market are businesses buyers?
Resource

16. Circular Flow Model Review (Worksheet)
<<<<<<Business Provide G/S (Products)
Households Pay for G/S (Products) >>>>>>
<<<<<<<Business Pay for FOP (Resources)
Households Provide FOP (Resources)>>>>>>
In which market are businesses sellers?
Product