Circular Flow Model The Circular Flow Model describes and shows how the economy interacts. FACTOR...
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Transcript of Circular Flow Model The Circular Flow Model describes and shows how the economy interacts. FACTOR...
Circular Flow ModelThe Circular Flow Model describes
and shows how the economy interacts.
FACTOR MARKET
Where you get your 4 factors of
production to make your goods and
services
PRODUCT MARKET
Where you buy your finished goods and
services for use
Business and Companies
Get the 4 factors of production from the Factor Market and
sale products in the Product Market.
Households
Provide 4 factors of production to the Factor Market and buy products from
the Product Market.
• HOUSEHOLDS provide the factor market with the four factors of production.– Land
•Labor–Capital
»Entrepreneurship
• In return, they receive income in the from:– Rent
•Wages– Interest
»Profit
• Businesses spend $$$ (costs) in the factor market to get the 4 factors of production to make goods and services.
• In return, businesses receive the land, labor, capital and entrepreneurship to make goods and services.
• Businesses make goods and services with their resources and supply it to the product market.
• In return, businesses get revenue for supplying their goods and services.
Households
• Households spend money in the product market.
• In return, households get the goods and services they want and need.
BusinessesHouseholds
Factor Market
Product Market
BusinessesHouseholds
Factor Market
Product Market
4 factors of production
Rent, Wages, Interest , & Profit
BusinessesHouseholds
Factor Market
Product Market
4 factors of production
Rent, Wages, Interest , & Profit
Resources
Costs
BusinessesHouseholds
Factor Market
Product Market
4 factors of production
Rent, Wages, Interest , & Profit
Resources
Costs
Revenue
Goods and Services
BusinessesHouseholds
Factor Market
Product Market
4 factors of production
Rent, Wages, Interest , & Profit
Resources
Costs
Revenue
Goods and Services Goods and Services
Consumer
Spending
Ticket Out The Door Questions!!!
You may use your notes1. The factors of production are bought and
sold in the ___________ market.2. Goods and services are bought and sold in
the ___________ market.3. In the circular flow model, ____________ buy
the factors of production from _____________.4. Households and businesses pay ___________
to the government in exchange for goods and services.