Chapter 1: The Nature and Methods of Economic Definition of Economics The social science concerned...
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Transcript of Chapter 1: The Nature and Methods of Economic Definition of Economics The social science concerned...
Chapter 1: The Nature and Chapter 1: The Nature and Methods of EconomicMethods of Economic
Definition of EconomicsDefinition of Economics
The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human needs.
Human wants are unlimited, but the means to satisfy the wants are limited.
Got stuff?Got stuff?
• Who made it?
• How was it made?
• How did you get it?
I. The Economic ProblemI. The Economic Problem
• the basic economic problem is scarcity:
-- wants are unlimited, but resources
are limited
• so with scarcity, we must make choices,
• and with choices, come costs
2. Products are sometimes classified as luxuries or necessities, but the division is subjective.
3. Services satisfy wants as well as goods.
4. Businesses and governments also have wants.
5. Over time, wants change and multiply.
B. the second fundamental fact: Scarce resources:
1. Economic resources are limited relative to wants.
2. Economic resources are sometimes called factors of production (inputs) and include four categories:
Scarcity and choiceScarcity and choice
• Resources can only be used for one purpose at a time.
• Scarcity requires that choices be made. we have to decide (make a choice) what we will have and what we will forgo
• The cost of any good, service, or activity is the value of what must be given up to obtain it (opportunity cost).
• Cost is the opportunity cost
-- what you give up when you make a choice
-- “there’s no such thing
as a free lunch”
Cost of going to college
-- what you can buy with tuition & fees
-- what you could earn by working
-- what you could do with the free time
• you are willing to give up
-- tuition
-- wages
-- leisure time
to go to college
-- b/c you expect higher income or more rewarding career
economics is the study of choiceseconomics is the study of choices
• of how to allocate scarce resources
• choices made by
-- consumers
-- businesses
-- governments
What are resources?What are resources?
• use resources to produce goods and services
• factors of production
-- land
-- labor
-- capital
-- entrepreneurship
LandLand
• all natural resources
-- land-- minerals
-- water
-- wildlife
LaborLabor
• size of labor force (quantity)
• skills of labor force (quality)
-- human capital
• the value of time
CapitalCapital
• physical capital
-- goods used to make other goods
-- factories
-- machines
-- infrastructure
• NOT financial capital
-- stocks, bonds, bank loans
• financial capital facilitates building of physical capital
entrepreneurshipentrepreneurship
• human resource
• ideas
-- doing things better
-- e-commerce
-- new products
RESOURCE PAYMENTS
Rent or Rental Income
Interest Income
WAGES
PROFIT & LOSS
PROPERTY RESOURCES
LAND
CAPITAL
HUMAN RESOURCES
LABOR
ENTREPRENEUR
Three Questions to answer:Three Questions to answer:
1. What to produce?
2. How to produce the stuff in #1?
3. For whom to produce?
(who gets the stuff in #1?)
Example: A BentleyExample: A Bentley
1. What to produce?• Bentley Motors designs a luxury car with
buyers in mind
• Bentley Motors decides how much to produce give the price and their costs
• Buyers decide how many to buy, based on price, their income, tastes, etc.
• Bentley Motors designs factory, uses machinery, & trains workers to minimize cost BUT retain a certain quality
• government restricts this decision:• Pollution laws
• safety laws
• labor laws
2. How to produce?2. How to produce?
• Those who are willing and able to pay K.D 50,000 for one.
(this is why I don’t have it)
3. Who gets the 3. Who gets the BentleyBentley??
Who answers #1-3?Who answers #1-3?
• pure capitalism
• when buyers and sellers interact to
answer these questions
• markets unrestricted
• private property
• prices coordinate #1-3
• the U.S. is a mixed market economy, since government plays a role
• enforces property rights
• regulates markets
• taxes to provide goods & services
• command system
• the government answers questions 1-3
• former U.S.S.R., N. Korea
• reduced incentives for efficiency
• coordination failures
Why Study Economics?Why Study Economics?Economics for citizenshipEconomics for citizenship
1. Most political problems have an economic aspect, whether it is balancing the budget, fighting over the tax structure (Kuwait is planning to introduce income tax), welfare reform, international trade, or concern for the environment.
2. Both the voters and the elected officials can fulfill their role more effectively if they have an understanding of economic principles.
Why Study Economics? Why Study Economics? Professional and personal applications Professional and personal applications
• Economics helps people to make sense of every day activity they observe around them
• Economic principles enable business managers to make more intelligent decisions.
• Economics can help individuals make better buying decisions, better employment choices, and better financial investments.
• Economics is to examine problems and decisions from a social rather than personal point of view.
Policy economics Policy economics applies economic facts and principles to help resolve
specific problems and to achieve certain economic goals.
• Steps in formulating economic policy:
1. State goals.
2. Recognize various options that can be used to achieve goals.
3. Evaluate the options on the basis of specific criteria important to decision-makers.
Macroeconomics and MicroeconomicsMacroeconomics and Microeconomics
Macroeconomics examines the economy as a whole. It includes measures of total output, total employment, total income, aggregate expenditures, and the general price level.
Microeconomics looks at specific economic units.
• It is concerned with the individual industry, firm or household and the price of specific products and resources.
SpecializationSpecialization
• How do we get the most out of our resources?
• We specialize in what we do best
and trade that for what we need
• I teach.
• I get paid for it.
• I use the money to buy
• food
• oil changes
• clothes
• If I• grew my own food
• made my own clothes
• fixed my own car
• I would not consume as much
• Specialization produces gains!• I can consume more
than what I could make
on my own
Who specializes in what?Who specializes in what?
• Comparative advantage• if you produce a good at a lower
opportunity cost
then you should specialize in it
Example: married coupleExample: married couple
• Husband: surgeon• $250,000 /year
• Wife: 5th grade teacher• $50,000 /year
• who should run the household?• Who has lower opportunity cost?
The wife.
with specialization,with specialization,
• division of labor• different people specialize in different
things
• people become very good at their task
• efficiency gains
-- get more out of same resources
specialization is everywherespecialization is everywhere
• doctors• neurosurgeon, obstetrics, pediatrics,…
• lawyers• divorce, real estate, patent law,
personal injury...
The bottom line:The bottom line:
• Scarcity & opportunity cost are unavoidable.
BUT
• efficiency & specialization
make the most of scarce resources
Employment and Efficiency
Economics is a science of efficiency in the use of scarce resources. Efficiency requires full employment of available resources and full production.
1. Full employment means all available resources should be employed.
2. Full production means that employed resources are providing maximum satisfaction of our economic wants. Underemployment occurs if this is not so.
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
PRODUCTION POSSIBILITIES
39
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
40
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
41
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
42
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
43
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
44
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical form
Ro
bo
ts(t
ho
usa
nd
s)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
45
At any point in time, a full-employment, full-production economy must sacrifice some of product X to obtain more of product Y.
PRODUCTION POSSIBILITIESLimited Resources meansa limited output...
46
Choices will be necessary because resources and technology are fixed. A production possibilities table illustrates some of the possible choices.
A production possibilities curve is a graphical representation of choices.
1. Points on the curve represent maximum possible combinations of robots and pizza given resources and technology.
2. Points inside the curve represent underemployment or unemployment.
3. Points outside the curve are unattainable at present.
47
Optimal or best product-mix:
1. It will be some point on the curve.
2. The exact point depends on society; this is a normative decision.
48
Q
Ro
bo
ts (t
ho
usa
nd
s)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
A B
C
D
E
W
Attainablebut
Inefficient
Unattainable
Attainable& Efficient
PRODUCTION POSSIBILITIES
49
Q
Q
Ro
bo
ts (t
ho
usa
nd
s)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
A B
C
D
E
W
Attainablebut
Inefficient
Unattainable
Attainable& Efficient
PRODUCTION POSSIBILITIES
Notes...
The amount of other products that must beforgone or sacrificed to obtain 1 unit of a specific product is called the opportunity cost of that good.
LAW OF INCREASINGOPPORTUNITY COSTS
50
Ro
bo
ts
Ro
bo
ts (t
ho
usa
nd
s)(t
ho
usa
nd
s)
Pizzas Pizzas (hundred thousands)(hundred thousands)
14141313121211111010 99 88 77 66 55 44 33 22 11
1 2 3 4 5 6 7 81 2 3 4 5 6 7 8
A B
C
D
E
W
Attainablebut
Inefficient
UnattainableUnattainable
AttainableAttainable& Efficient& Efficient
PRODUCTION POSSIBILITIES
Notes...LAW OF INCREASINGOPPORTUNITY COSTS
A graph of the production possibilities curve will be CONCAVE - bowed out from the origin.
Economic resources arenot completely adapt-able to other uses.
51
E. Law of increasing opportunity costs:1. The amount of other products that must be
foregone to obtain more of any given product is called the opportunity cost.
2. Opportunity costs are measured in real terms rather than money (market prices are not part of the production possibilities model).
3. The more of a product produced the greater is its (marginal) opportunity cost.
4. The slope of the production possibilities curve becomes steeper, demonstrating increasing opportunity cost. This makes the curve appear bowed out, concave from the origin.52
Economic Rationale:
a. Economic resources are not completely adaptable to alternative uses.
b. To get increasing amounts of pizza, resources that are not particularly well suited for that purpose must be used. Workers that are accustomed to producing robots on an assembly line may not do well as kitchen help.
How does society decide its optimal point on the production possibilities curve?53
Unemployment, Growth, and the Future
Unemployment and productive inefficiency occur when the economy is producing less than full production or inside the curve (point U in the following figure).
In a growing economy, the production possibilities curve shifts outward:
1. when resource supplies expand in quantity or quality.
2. when technological advances are occurring.54
Q
Q
Ro
bo
ts (t
ho
usa
nd
s)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
U
Unemployment &Underemployment Shown by Point U
More of either orboth is possible
PRODUCTION POSSIBILITIES
55
Q
Q
Ro
bo
ts (t
ho
usa
nd
s)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
U
Unemployment &Underemployment Shown by Point U
More of either orboth is possible
PRODUCTION POSSIBILITIES
Notes...Economic Growth
The ability to producea larger total output -a rightward shift of the production possibilities curve caused by...
56
Q
Q
Ro
bo
ts (t
ho
usa
nd
s)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
U
Unemployment &Underemployment Shown by Point U
More of either orboth is possible
PRODUCTION POSSIBILITIES
Notes...Economic Growth1 – Increase in resource
supplies
2 – Better resource quality
3 – Technological advances
57
Economic Growth
Q
Q
Ro
bo
ts (t
ho
usa
nd
s)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
A’
B’
C’
D’
E’
PRODUCTION POSSIBILITIES
58
Present choices and future possibilities:
Using resources to produce consumer goods and services represents a choice for present over future consumption. Using resources to invest in technological advances, education, and capital goods represents a choice for future over present goods. The decision as to how to allocate resources in the present will create more or less economic growth in the future.
(See for example Global Perspective 2-1 where various countries are compared with respect to their economic growth rates relative to the share of GDP devoted to investment.)
D. A Qualification: International Trade1. A nation can avoid the output limits of its domestic Production
Possibilities through international specialization and trade.2. Specialization and trade have the same effect as having more and
better resources of improved technology.59
Two Examples of Economic GrowthALTA - FAVORS
PRESENT GOODS
Goods for the Present
Go
od
s fo
r th
e F
utu
reG
oo
ds
for
the
Fu
ture CURRENT
CURVE
FUTURECURVE
CONSUMPTION
PRODUCTION POSSIBILITIES
Alta60
Two Examples of Economic GrowthALTA - FAVORS
PRESENT GOODSZORN - FAVORSFUTURE GOODS
Goods for the Present
Go
od
s fo
r th
e F
utu
re CURRENTCURVE
FUTURECURVE
CONSUMPTION
Goods for the Present
Go
od
s fo
r th
e F
utu
re
FUTURECURVE
CONSUMPTION
CURRENTCURVE
PRODUCTION POSSIBILITIES
Alta Zorn61
Economic systems
Economic systems differ in two important ways: Who owns the factors of production and the method used to coordinate economic activity.
A. The market system:
1. There is private ownership of resources.2. Markets and prices coordinate and direct economic activity.3. Each participant acts in his or her own self-interest.4. In pure capitalism the government plays a very limited role.
62
Economic systems
B. Command economy, socialism or communism:
1. There is public (state) ownership of resources.
2. Economic activity is coordinated by central planning.
C. Mixed economy
63
SpecializationSpecialization
• How do we get the most out of our resources?
• We specialize in what we do best
and trade that for what we need
• I teach.
• I get paid for it.
• I use the money to buy
• food
• oil changes
• clothes
• If I• grew my own food
• made my own clothes
• fixed my own car
• I would not consume as much
• Specialization produces gains!• I can consume more
than what I could make
on my own
Who specializes in what?Who specializes in what?
• Comparative advantage• if you produce a good at a lower
opportunity cost
then you should specialize in it
Example: married coupleExample: married couple
• Husband: surgeon• $250,000 /year
• Wife: 5th grade teacher• $50,000 /year
• who should run the household?• Who has lower opportunity cost?
The wife.
with specialization,with specialization,
• division of labor• different people specialize in different
things
• people become very good at their task
• efficiency gains
-- get more out of same resources
specialization is everywherespecialization is everywhere
• doctors• neurosurgeon, obstetrics, pediatrics,…
• lawyers• divorce, real estate, patent law,
personal injury...
The bottom line:The bottom line:
• Scarcity & opportunity cost are unavoidable.
BUT
• efficiency & specialization
make the most of scarce resources
Employment and Efficiency
Economics is a science of efficiency in the use of scarce resources. Efficiency requires full employment of available resources and full production.
1. Full employment means all available resources should be employed.
2. Full production means that employed resources are providing maximum satisfaction of our economic wants. Underemployment occurs if this is not so.
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
PRODUCTION POSSIBILITIES
73
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
74
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
75
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
76
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
77
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical formR
ob
ots
(th
ou
san
ds)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
78
PIZZA 0 1 2 3 4(in hundred thousands)
ROBOTS 10 9 7 4 0(in thousands)
in table form
graphical form
Ro
bo
ts(t
ho
usa
nd
s)
Pizzas (hundred thousands)
PRODUCTION POSSIBILITIES
79
At any point in time, a full-employment, full-production economy must sacrifice some of product X to obtain more of product Y.
PRODUCTION POSSIBILITIESLimited Resources meansa limited output...
80
Choices will be necessary because resources and technology are fixed. A production possibilities table illustrates some of the possible choices.
A production possibilities curve is a graphical representation of choices.
1. Points on the curve represent maximum possible combinations of robots and pizza given resources and technology.
2. Points inside the curve represent underemployment or unemployment.
3. Points outside the curve are unattainable at present.
81
Optimal or best product-mix:
1. It will be some point on the curve.
2. The exact point depends on society; this is a normative decision.
82
Q
Ro
bo
ts (t
ho
usa
nd
s)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
A B
C
D
E
W
Attainablebut
Inefficient
Unattainable
Attainable& Efficient
PRODUCTION POSSIBILITIES
83
Q
Q
Ro
bo
ts (t
ho
usa
nd
s)
Pizzas (hundred thousands)
1413121110 9 8 7 6 5 4 3 2 1
1 2 3 4 5 6 7 8
A B
C
D
E
W
Attainablebut
Inefficient
Unattainable
Attainable& Efficient
PRODUCTION POSSIBILITIES
Notes...
The amount of other products that must beforgone or sacrificed to obtain 1 unit of a specific product is called the opportunity cost of that good.
LAW OF INCREASINGOPPORTUNITY COSTS
84
Ro
bo
ts
Ro
bo
ts (t
ho
usa
nd
s)(t
ho
usa
nd
s)
Pizzas Pizzas (hundred thousands)(hundred thousands)
14141313121211111010 99 88 77 66 55 44 33 22 11
1 2 3 4 5 6 7 81 2 3 4 5 6 7 8
A B
C
D
E
W
Attainablebut
Inefficient
UnattainableUnattainable
AttainableAttainable& Efficient& Efficient
PRODUCTION POSSIBILITIES
Notes...LAW OF INCREASINGOPPORTUNITY COSTS
A graph of the production possibilities curve will be CONCAVE - bowed out from the origin.
Economic resources arenot completely adapt-able to other uses.
85
E. Law of increasing opportunity costs:1. The amount of other products that must be
foregone to obtain more of any given product is called the opportunity cost.
2. Opportunity costs are measured in real terms rather than money (market prices are not part of the production possibilities model).
3. The more of a product produced the greater is its (marginal) opportunity cost.
4. The slope of the production possibilities curve becomes steeper, demonstrating increasing opportunity cost. This makes the curve appear bowed out, concave from the origin.86
The Market The Market System and System and the Circular the Circular FlowFlow
2C H A P T E R
PROPERTY RESOURCESPROPERTY RESOURCES
1. LAND1. LAND
2. CAPITAL2. CAPITAL
HUMAN RESOURCESHUMAN RESOURCES
3. LABOR3. LABOR
4. ENTREPRENEURIAL ABILITY4. ENTREPRENEURIAL ABILITY
SCARCE RESOURCESSCARCE RESOURCESECONOMIC RESOURCESECONOMIC RESOURCES
Resource payments: correspond to resource Resource payments: correspond to resource categoriescategories
RENTALRENTALINCOMEINCOME
INTERESTINTERESTINCOMEINCOME
WAGESWAGES
PROFIT &PROFIT &LOSSLOSS
PROPERTY RESOURCESPROPERTY RESOURCES
LANDLAND
CAPITALCAPITAL
HUMAN RESOURCESHUMAN RESOURCES
LABORLABOR
ENTREPRENEURENTREPRENEUR
Macroeconomics Starts Here
Economic SystemsEconomic Systems
• Definition: A particular set of institutional arrangements and a coordinating mechanism to respond to the economizing problem.
• Economic systems differ as to:
1) who owns the factors of production
2) the method used to motivate, coordinate, and direct economic activity.
The Command SystemThe Command System
• The government owns most property resources and economic decision making occur through a central economic plan.
• The central planning board determines production goals for each firm and resources to be allocated.
The Market SystemThe Market System
• There is private ownership of resources.
• Markets and prices coordinate and direct economic activity.
• Each participant acts in its own self-interest.
• In pure capitalism the government plays a very limited role.
Characteristics of the Market Characteristics of the Market SystemSystem
• Private Property.
• Freedom of firms to choose.
• Self interest.
• Competition.
• Markets and prices.
• Technology and capital goods.
• Specialization.
• Use of money.
• Active, but limited government.
The Circular Flow Model The Circular Flow Model
• There are two groups of decision makers in There are two groups of decision makers in the private economy: households the private economy: households (resource (resource owners)owners) and businesses and businesses (resource users)(resource users)
• The market system The market system (resource markets and (resource markets and product markets)product markets) coordinates these coordinates these decisions.decisions.
What happens in the resource markets? What happens in the resource markets?
a.a. Households Households sellsell resources directly or resources directly or indirectly (through ownership of corporations) to indirectly (through ownership of corporations) to businesses.businesses.
b. Businesses b. Businesses buybuy resources in order to produce resources in order to produce goods and services.goods and services.
c.c. Interaction of these sellers and buyers Interaction of these sellers and buyers determines the determines the price of each resourceprice of each resource, which , which in turn provides in turn provides incomeincome for the owner of that for the owner of that resource.resource.
d.d. Flow of payments from businesses for the Flow of payments from businesses for the resources constitutes business resources constitutes business costscosts and and resource owners’ resource owners’ incomesincomes..
What happens in the product markets?What happens in the product markets?a. Households are on the a. Households are on the buyingbuying side of these side of these
markets, purchasing goods and services.markets, purchasing goods and services.
b.b. Businesses are on the Businesses are on the sellingselling side of side of these markets, offering products for sale.these markets, offering products for sale.
c.c. Interaction of these buyers and sellers Interaction of these buyers and sellers determines the price of each product.determines the price of each product.
d.d. Flow of consumer expenditures Flow of consumer expenditures constitutes constitutes sales receiptssales receipts for businesses. for businesses.
CIRCULAR FLOW MODEL
BUSINESSES HOUSEHOLDS
RESOURCEMARKET
PRODUCTMARKET
BUSINESSES HOUSEHOLDS
RESOURCEMARKET
RESOURCES INPUTS
PRODUCTMARKET
CIRCULAR FLOW MODEL
BUSINESSES HOUSEHOLDS
RESOURCEMARKET
RESOURCES INPUTS
$ COSTS $ INCOMES
GOODS &GOODS &SERVICESSERVICES
GOODS &GOODS &SERVICESSERVICES
PRODUCTMARKET
CIRCULAR FLOW MODEL
BUSINESSES HOUSEHOLDS
RESOURCEMARKET
RESOURCES INPUTS
$ COSTS $ INCOMES
PRODUCTMARKET
GOODS &SERVICES
GOODS &SERVICES
CIRCULAR FLOW MODEL
BUSINESSES HOUSEHOLDS
RESOURCEMARKET
RESOURCES INPUTS
$ COSTS $ INCOMES
PRODUCTMARKET
GOODS &SERVICES
GOODS &SERVICES
$ CONSUMPTION$ REVENUE
CIRCULAR FLOW MODEL
CIRCULAR FLOW MODEL
BUSINESSES HOUSEHOLDS
RESOURCEMARKET
RESOURCES INPUTS
$ COSTS $ INCOMES
PRODUCTMARKET
GOODS &SERVICES
GOODS &SERVICES
$ CONSUMPTION$ REVENUE
More Realistic Circular FlowMore Realistic Circular Flow
Macroeconomic PoliciesMacroeconomic Policies