2. The Circular Flow Model Where does your money go?

3. Circular Flow Model Businesses Global, National, & Local Product Markets Global, National, & Local Factor Markets Individuals

4. The Circular Flow Model Purpose – Shows how markets connect people & businesses in the economy. Market – Place where buyers and sellers exchange money for goods & services.

5. Factor Markets Individuals Earn Income What are some examples? Entrepreneurs Hire labor Acquire land Put capital to work Why? Def. – Market in which productive resources are bought & sold.

6. Product Markets Individuals Spend their money Businesses Offer goods & services Def. – Markets in which goods & services are bought & sold. Wages & salaries earned from businesses in factor market are returned to businesses in the product market When and how do you participate in the product market? What is the money businesses make in this market used for?

7. The Role of Markets Circular Flow Diagram has no start or end point IMPORTANT – Individuals & businesses are connected by markets!

8. Activity Return to your group from last week You will create a circular flow diagram of you purchasing your assigned good Include: Factor Market – What you do in it & What goes into your product Business – Name a business who produces your product Product Market – Your product & the market’s name Individual – Who bought it/participated in factor market