1. Circular flow
SSEMI1

2. Standard – SSEMI1
You will be able to describe how each sector of the economy (households, businesses, and government) interacts with one another in markets.
You will explain how each sector is both consumer and producer in order to create a circular flow of goods and services.

3. Introduction
Circular Flow is what makes the wealth that our economy produces possible!
The key feature of circular flow is the MARKET (a location that allows buyers and sellers to exchange a specific product)
Markets can be local, national, or global or even cyberspace!

5. Factor Markets Individuals earn their money in FACTOR MARKETS
This is where the FACTORS OF PRODUCTION are bought and sold
This is where ENTREPRENEURS hire labor for wages and salaries, acquire land in return for rent, and borrow money
YOU participate in the factor market when you work and sell your labor to an employer

6. Product markets
After individuals receive their income from the resources that they sell in a factor market, they spend it in PRODUCT MARKETS
This is where PRODUCERS sell their goods and services
The wages and salaries that individuals receive from businesses in the FACTOR market returns to businesses in the PRODUCT market
Businesses then use this money to produce more GOODS AND SERVICES and the process repeats itself

7. Terms to know Expenditures = spending
Income payments = money payments earned by households in exchange for their productive resources
Rent is an income payment earned by providing land to a business
Interest is an income payment for borrowing money
Wages and salaries are income payments eared from selling your labor

8. Businesses = firms
In the Circular Flow – they(firms) are the consumers of productive resources
They purchase land, labor, and capital
Businesses in the product market are the producers of goods and services
Revenue = money payment to a business by a household (it is NOT the same a profit!!!)
Profit = payment to entrepreneurs if there is any revenue remaining AFTER all costs have been paid

13. Assignment
Using craft paper, create your OWN very beautiful circular flow diagram
Label all the markets, individuals, businesses
Label and show the flow of money
Label and show the flow of resources and final goods/services
Illustrate each market/individual/business
Must be COLORFUL and NEAT