Circular Flow Examples taken from Entrepreneurs in the U.S. Economy, Lesson 9 Kerry Montano University High School

Objective After taking notes from a PowerPoint and working with a partner to identify movement in the circular flow, students will identify components of the circular-flow diagram and will determine where each example of a specific transaction is located in the circular flow.

Individuals function as both consumers and producers

Consumers Buy goods and services in product market Example: Buying food at a local grocery store is an exchange in a product market

Resource owners As resource owners, individuals function as producers by supplying productive resources to businesses, which use these resources to produce goods and services Transactions that occur in resource markets are businesses paying wages to workers, rent to landowners or interest on loans for plant and equipment.

Circular Flow Model

Questions 1. According to the diagram, in which markets do businesses give money-income payments to households in exchange for their productive resources? 2. In which markets do households give money payments to businesses in exchange for goods and services?

Government in the Circular Flow

Questions 1. Give an example of a productive resource that households sell to government. 2. Give an example of a good or service that businesses sell to government. 3. Give an example of a good or service that government provides to households in exchange for money payments, mainly taxes. 4. Give an example of a good or service that government provides to businesses in exchange for money payments.

Transactions 1.Ted sold the trees on 500 acres of land he owned to a lumber company that cut them down to make lumber.

2. Maria received a $200 interest payment from a business to which she had lent money.

3.The Amalgamated Shoe Company sent 5,000 pairs of shoes to a major discount store.

4.Terry paid $75 for a new jacket.

5. A business paid Amy $4,000 a month to use a building she owns.

6.Jane received a paycheck for $675.80 from her employer.

7. The Ajax Cleaning Company came to Frank’s house and cleaned his carpet.

8. Larry earned $35,000 last year from the restaurant he owns.

9. Jason bought a new battery for his car.

Sara paid the bill for her charge card at a department store.

10. Sara paid the bill for her charge card at a department store.

Work with a partner On the next slide, read the scenario, when you have finished reading, raise your hand. You will answer 9 questions based on the next slide so write down important information in your notes Write down your answers to the 9 questions and be prepared to share with the class

Garland is a small farming community in the Midwest Garland is a small farming community in the Midwest. For many years most people in Garland have either worked on farms or owned small businesses, or they have been unemployed. Last December a manufacturer of office furniture bought 50 acres of land and announced it would build a new factory. The company would employ 250 workers and have a yearly payroll of nearly $6,000,000. Describe the effects of the new factory on the items below. Then place the number of each item on the circular-flow diagram to indicate whether the activity takes place in the product market or factor market.

the number of people wanting to buy homes in Garland the sales of clothing and other goods in Garland’s stores 3. the number of people employed in Garland’s stores 4. the number of stores rented in Garland 5. the number of cars sold at the local dealership 6. the wages paid to local construction workers 7. the number of tickets sold at the local movie theater 8. the profit earned by local grocery stores 9. Suppose you own a business that sells insurance in Garland. How will the new factory create entrepreneurial opportunities for you? The number of people wanting to buy homes in Garland will increase. This appears on the flow of products from businesses to households. (2) The sales of clothing and other goods in Garland’s stores will increase. This appears on the flow of products from firms to households. (3) The number of people employed in Garland’s stores will increase. This appears on the flow of resources from households to firms. (4) The number of stores rented in Garland will increase. This appears on the flow of products from households to firms. (5) The number of cars sold at the local dealership will increase. This appears on the flow of products from firms to households. (6) The wages paid to local construction workers will increase. This appears on the flow of money from firms to households. (7) The number of tickets sold at the local movie theater will increase. This appears on the flow of products from firms to households. (8) The profit earned by local grocery stores will increase. This appears on the flow of money from households to businesses. ( 9) Answers will vary. A possible answer is that there will be many more people and businesses in Garland who will need all kinds of insurance. The new construction of homes and the purchase of goods will increase the need for homeowners’ and renters’ policies. People will need to buy more automobile insurance for the cars they are buying.