Circular Flow of a Market Economy

What does an economy look like?

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)

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

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.

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

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)>>>>>>

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? ________ _____

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)

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)

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

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

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

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)

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

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