1. The Circular Flow of Income

2. The circular flow of income
The interdependence of goods markets
and factor markets

3. The interdependence of goods and factor markets
FIRMS
(suppliers of goods and services,
demanders of factor services)
HOUSEHOLDS
(demanders of goods and services,
suppliers of factor services)

4. The interdependence of goods and factor markets
(3)
Factor
demand
(2)
Producer
supply
Factor
services
Goods P P D2 S S D2 D1 D1
PF2 P2
QF2
PF1 P1 Q2
QF1 Q1 O
Factor
services Q
Goods O Q
(4)
Factor
supply
(1)
Consumer
demand

5. The circular flow of income
Consumption, injections, withdrawals and equilibrium

6. The circular flow of income
Firms
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Households

7. The circular flow of income
Export
expenditure (X)
INJECTIONS
Government
expenditure (G)
Investment (I)
Consumption of
domestically
produced goods
and services (Cd)
BANKS, etc
Net
saving (S)
ABROAD
Import
expenditure (M)
Factor
payments
GOV.
Net
taxes (T)
WITHDRAWALS