Circular Flow of the Economy AP Macro Dual Credit Macro

Markets-mechanisms that allow for buying and selling Factor Markets-productive resources are bought and sold. Product Markets-producers sell goods/services to consumers. Recently markets have evolved into cyberspace, with buyers and sellers interacting through computers without leaving their homes.

Circular Flow Concepts Product Market – where goods and services are exchanged Households – suppliers of the factors of production & demanders of goods and services Government – providers of public goods and services & demanders of both private goods and services and the factors of production Businesses / Firms – suppliers of goods and services & demanders of the factors of production Factor Market – where the factors of production are exchanged

<<<<Goods and Services <<<< Product Market <<<<Goods and Services <<<< >>>$ Household Spending $>>> <<<goods & services<<< <<<public goods<<< >>$ government spending $>> >>$ taxes $>>> >>>public goods>>> >>>factors of production>>> <<$ taxes $<< <<$ factor payments $<< Households Government Businesses / Firms <<<$ Rent, wages, interest & profits $<<< >>>> Land, labor, capital & entrepreneurship >>>> Factor Market

Circular Flow Diagram This diagram illustrates the flow of goods/services and money in a market system. In a market economy-consumers and businesses answer the what, how and for whom to produce questions. Other terms include, capitalism and mixed or free market economy.

Circular Flow of the Economy Individuals Factor Markets Industry Product Markets Govt