1. The Role of Households & Businesses The Matrix
Microeconomics
The Role of Households & Businesses
The Matrix

2. Microeconomics
Study of the economic behavior of individual units of an economy (such as a person, household, firm, or industry)
“Economics of everyday people”

3. Microeconomics
There are sectors within the economy that have specific roles to play
In order to play their roles effectively these sectors are dependent on each other
two main sectors within microeconomics
Households
Businesses (firms)

4. Interdependence of Households & Businesses
Households need businesses for
Goods & Services (To Consume)
Income (To purchase goods/services)
Businesses need households for
Labor (to produce goods)
Markets (To Sell goods)

5. Circular flow diagram

6. Circular Flow Diagram With Factor & Product markets
Factor Markets Include
Households as providers of land, labor, capital, & entrepreneurship to businesses
Households earn income in exchange for providing factors of production
Businesses as consumers of the land, labor, capital, & entrepreneurship of Households
Businesses pay (wages) households for use of factors of production

7. Circular Flow Diagram With Factor & Product markets
Product Markets Include
Households as consumers of goods & services provided by businesses
Households spend money earned in factor market to purchase goods & services
Businesses as providers of goods & services to households.
Businesses earn revenue in return for providing goods & services