Vocabulary Economic Interdependence- Businesses, households, and the gov’t all depend on each other in order for the economy to run smoothly. Factor Market- Where the 4 factors of production are bought and sold. Product Market- Where firms sell their goods and services and people buy them.

Warm Up? How are you able to buy the things you want and need?

The Circular Flow of Economic Activity

The Circular Flow Our economy is an enormous, constant cycle, with money, products, and energy flowing back and forth Economists refer to this as the Circular Flow of Economic Activity Economic Interdependence Businesses, households, and the government depend on each other in order for the economy to run smoothly.

Households are where you find regular people who work and consume in our economy

Households Firms are the businesses that produce, employ us, and purchase in our economy

Factor Market The factor market is where the four factors of production are bought and sold. Households Firms

The Factor Market Factor Market Four Factors Factor Market Households contribute their land, labor, skills, and capital to the factor marker. Households Firms

Those things are put to use in firms. Four Factors Factor Market Four Factors Those things are put to use in firms. Households Firms

The Product Market Factor Market Product Market Four Factors Factor Market Four Factors The product market is where firms sell their goods and services and people buy them. Households Firms Product Market

Firms send those goods and services into the market. Four Factors Factor Market Four Factors Firms send those goods and services into the market. Households Firms Product Market Goods and Services To Be Sold

Purchased Goods and Services Four Factors Factor Market Four Factors The goods and services go back into households. Households Firms Product Market Purchased Goods and Services Goods and Services To Be Sold

Purchased Goods and Services Four Factors Factor Market Four Factors Wages and Salaries Meanwhile, firms put money back into the factor market in the form of wages and salaries. Households Firms Product Market Purchased Goods and Services Goods and Services To Be Sold

Purchased Goods and Services Four Factors Factor Market Four Factors Income Wages and Salaries This money is the income households earn. Households Firms Product Market Purchased Goods and Services Goods and Services To Be Sold

Purchased Goods and Services Four Factors Factor Market Four Factors Income Wages and Salaries Households spend this money on goods and services Households Firms Expenditures Product Market Purchased Goods and Services Goods and Services To Be Sold

Purchased Goods and Services Four Factors Factor Market Four Factors Income Wages and Salaries And businesses earn revenue. Households Firms Expenditures Revenue Product Market Purchased Goods and Services Goods and Services To Be Sold

Purchased Goods and Services Four Factors Factor Market Four Factors Income Wages and Salaries Households Firms Expenditures Revenue Product Market Purchased Goods and Services Goods and Services To Be Sold

A Simplified Version RESOURCES WAGES AND SALARIES Households Businesses EXPENDITURES FINISHED GOODS

THE ROLE OF GOVERNMENT THE GOVERNMENT, MEANWHILE, PROVIDES LAW AND ORDER, STABILITY AND STRUCTURE TO ALLOW OUR ECONOMY TO PROSPER FURTHERMORE, THE GOVERNMENT ALSO PROVIDES GOODS AND SERVICES THAT MIGHT NO OTHERWISE BE PROVIDED BY MARKET DEMANDS…….. NATIONAL DEFENSE MAINTAINING NATIONAL AND PUBLIC PARKS AND MONUMENTS

REFLECTION What is economic interdependance? What three elements depend on one another for economic interdependance? What role do households play in the economy? What role do firms play in the economy? What role does the government play in the economy? What type of economic system does the Island of Mocha have?

Closing? What type of economic system does the Island of Mocha have?