The Circular Flow Model describes and shows how the economy interacts.

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Presentation transcript:

The Circular Flow Model describes and shows how the economy interacts. FACTOR MARKET Where you get your 4 factors of production to make your goods and services PRODUCT MARKET Where you buy your finished goods and services for use

Business and Companies Get the 4 factors of production from the Factor Market and sale products in the Product Market. Households Provide 4 factors of production to the Factor Market and buy products from the Product Market.

HOUSEHOLDS provide the factor market with the four factors of production. Land Labor Capital Entrepreneurship In return, they receive income in the from: Rent Wages Interest Profit

Businesses spend $$$ (costs) in the factor market to get the 4 factors of production to make goods and services. In return, businesses receive the land, labor, capital and entrepreneurship to make goods and services.

Businesses make goods and services with their resources and supply it to the product market. In return, businesses get revenue for supplying their goods and services.

Households Households spend money in the product market. In return, households get the goods and services they want and need.

Factor Market Product Market Businesses Households Product Market

Rent, Wages, Interest , & Profit 4 factors of production Factor Market Rent, Wages, Interest , & Profit Businesses Households Product Market

Rent, Wages, Interest , & Profit Resources 4 factors of production Factor Market Rent, Wages, Interest , & Profit Costs Businesses Households Product Market

Rent, Wages, Interest , & Profit Resources 4 factors of production Factor Market Rent, Wages, Interest , & Profit Costs Businesses Households Revenue Product Market Goods and Services

Rent, Wages, Interest , & Profit Resources 4 factors of production Factor Market Rent, Wages, Interest , & Profit Costs Businesses Households Consumer Spending Revenue Product Market Goods and Services Goods and Services

Ticket Out The Door Questions!!! You may use your notes The factors of production are bought and sold in the ___________ market. Goods and services are bought and sold in the ___________ market. In the circular flow model, ____________ buy the factors of production from _____________. Households and businesses pay ___________ to the government in exchange for goods and services.