1. Explorations in Economics
Alan B. Krueger & David A. Anderson

2. MODULE 6: The Modern Market Economy
Circular Flow Model
OBJECTIVES:
To explain the relationship among households, firms, and markets in a market economy.
To explain the government’s role in a market economy.
To describe how the government fits into the circular flow model of the economy
Have the class brainstorm their families involvement in the economy as both workers and consumers. Then have students think of how firms both demand labor and supply goods and services. This is the circular flow model.

3. HOUSEHOLDS, FIRMS, AND MARKETS
A household consists of an individual or a group of people who live together and share income, such as you and your family.
1. Households purchase
goods and services from businesses.
2. Households provide land, labor, capital, and entrepreneurship (resources) from which goods and services are produced.
This is a good place to mention that households DEMAND goods and services and SUPPLY land, labor and capital.

4. HOUSEHOLDS, FIRMS, AND MARKETS
A firm is a privately owned organization that produces goods or services and sells them to others.
This is a good place to mention that firms DEMAND land, labor and capital and SUPPLY goods and services.

5. THE SIMPLE CIRCULAR FLOW
Have the students identify the difference between the clockwise flow of money and the counter-clockwise flow of goods.

6. THE SIMPLE CIRCULAR FLOW
Product markets
are where goods and services are exchanged for money.
Again focus on the counter clockwise and clockwise flow.
Be sure to address the product market function of goods and services exchanged for money payments to firms. The Factor market is where the resources of land, labor, capital and entrepreneurship are exchanged for money payment to households.
Factor markets
are where resources are
exchanged for money.

7. GOVERNMENT’S ROLE IN A MARKET ECONOMY
1. A government can establish and enforce rules that improve market performance.
2. A government can provide important goods and services that private individuals tend not to purchase.
3. A government can help improve economic security, equity, and sustainability.
Recall for students that the term “government” could mean federal, state or local governments.
Discussion:
What are some goods and services that the government provides? Try to encourage goods and services from each of of the categories on the slide
Why does government provide these goods and services?
Why are they not provided by private sector firms?

8. GOVERNMENT IN THE CIRCULAR FLOW
Focus on the flow of money to the government. Ask the students what taxes they pay and which government agency collects and spends the revenue.

9. Government in the Circular Flow
Discuss with the students their view of the role of government within the economy.
Make sure to point out the clockwise and counter-clockwise flow in the model

10. Module 6 Review What is… A. Household? B. Firm?
C. Circular flow diagram?
D. Product market?
E. Factor market?
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

11. Circular Flow Practice
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

12. Draw this chart on your paper Try to correctly label the Participants on the Chart in 1 minute… It doesn’t matter where you start, just that participants are in order relative to each other

13. Check your answers Government Product Market Individual
Factor /Resource
Market
Business

14. Draw this chart on your paper Try the Chart again in a different order
Product Market

15. Check your answers Government Business Factor/ Resource Market
Individual/ Household
Product Market

16. List A-D on your paper Now complete the chart by including items bought and sold in the market
Government
Product Market
Individual
Factor /Resource
Market
Business D C A B

17. Check your Answers Government Product Market Individual
Factor /Resource
Market
Business
Products
Goods and Services
Productive Resources
Labor

18. List A-L on your paper Now complete the chart by including items bought and sold in the marketF L I K J H G

19. Check your Answers Government Product Market Individuals Factor Market
Businesses
Products
Goods and Services $$ $$ $$
Wages
Productive Resources
Labor

20. You made it to the end of this lesson!! Can you….
Answer these Questions?
When do we engage in voluntary and involuntary exchange in the American economy?
How are households, business, and government interrelated through markets and the flow of money?
What role do I play in the economy?
You made it to the end of this lesson!! Can you….
Define these Terms?
Content Terms
Market
Capital Goods
Productive Resources
Product Market
Factor/Resource Market
Circular Flow Diagram
Academic Terms
Mechanism
Interact
Interdependent
Facilitate
Illustrate
Sample Questions

21. Can you answer this? The flow of goods and services
to consumers is illustrated by
1 to 2
2 to 3
3 to 4
4 to 1 4 3 1 2

22. Can you answer this? The flow of goods and services
to producers is illustrated by
1 to 2
2 to 3
3 to 4
4 to 1 4 3 1 2

23. Can you answer this?
When the U.S. government purchases a submarine from a company, the government has made a major transaction in the
Factor Market
Public Market
Product Market
Foreign Exchange Market

24. Circular Flow Practice
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

25. Circular Flow Practice
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

26. Circular Flow Practice
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

27. Circular Flow Practice
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

28. Circular Flow Practice
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

29. Circular Flow Practice
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

30. Circular Flow Practice
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.