6.1 – Circular Flow of Income Identify the Circular Flow of Income

I. Circular Flow of Income Factor Market- where businesses buy factors of production from households 1. Households earn income from selling land, labor, and capital Factor market: Incomes Businesses Households

Circular Flow of Economic Activity Product Market- business supply goods and services for sale to households Households return money to businesses by buying from firm Factor market: Incomes Circular Flow of Economic Activity Businesses Households Product market: Expenditures

What kind of Economy does the US have? The US was based on a free market economy but the US government (over time) has intervened to keep order, regulate, provide services and promote general welfare Technically its a Mixed-Economy because… individuals, companies and the government decide what gets produced

In a mixed economy, the government also plays a role Individuals and businesses pay taxes to the government The government uses that money to regulate the economy, make public works, and provide entitlements Factor market: Incomes Entitlements and Services Taxes and Fees Regulation Taxes Businesses Households Government Product market: Expenditures

Draw It!