The Circular Flow Model

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Presentation transcript:

The Circular Flow Model

Free Market System Businesses Individual

Free Market System Resource Market Businesses Individual Product Market

Goods & services Purchased Free Market System Resource Market Cost $ Income Resources Resources Land Labor Capital Entrepreneur 4 factors of production: Land Labor Capital Entrepreneur Businesses Individual Goods & services sold Goods & services Purchased Product Market Revenue (Not Profit) Spending

Goods & services Purchased Free Market System Resource Market Demand Supply Cost $ Income Resources Resources Land Labor Capital Entrepreneur 4 factors of production: Land Labor Capital Entrepreneur Businesses supply in product market & demand in resource market. Individuals demand in the product market & supply in the resource market. Businesses Individual Goods & services Purchased Goods & services sold Spending Revenue (Not Profit) Demand Supply Product Market

The Circular Flow Model Supply Demand Cost $ Income Resources Resources 4 factors of production: Land Labor Capital Entrepreneur Businesses supply in product market & demand in resource market. Individuals demand in the product market & supply in the resource market. Government demands in the product & resource markets and supplies public goods. Transfer payment: money paid to individuals by the government through social programs Goods & services sold Goods & services Purchased Revenue (Not Profit) Spending Supply Demand

Give 3 examples of transaction you made this week in the product market. Give an example of a transaction you or your family made this month in a factor market. How are businesses connected to the factor and product market? 4. What determines the prices of land, labor, capital and entrepreneurship in a factor market? 5. Where do resource owners get the money to buy goods and services in the product market? 6. Where do business firms get the money to pay resource owners for their land, labor, capital and entrepreneurship in factor markets? 7. Why is it important to know that a market economy is characterized by interdependence?