Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments...

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Understanding the circular flow of income

Transcript of Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments...

Page 1: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

Understanding the circular flow of

income

Page 2: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

HOUSEHOLDS RESOURCE OWNERS

Business firms

Money payments

Income paymentsWages, Rent, Interest, Profits

Consumer Purchases

Productive ResourcesL. L. C. E.

Goods & Services

The product market

The factor market

Page 3: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

1. Give three examples of resource owners

• 1.

• 2.

• 3.

Page 4: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

2. Define a business firm

Page 5: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

3. What is the product market?

Page 6: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

4. Give three examples of transactions you made this week in

the product market:

• 1.

• 2.

• 3.

Page 7: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

5. What is the factor market?

Page 8: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

6. Give an example of a transaction you or your family made this week

in the factor market:• 1.

• 2.

Page 9: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

7. How are business firms connected to the factor and

product markets?

Page 10: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

8. How are households connected to the factor and

product markets?

Page 11: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

9. Where do resource owners get the money to buy goods and services in the product

market?

Page 12: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

10. Where do business firms get the money to pay resource

owners for their land, labor, capital and entrepreneurship in

the factor market?

Page 13: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

11. Why is it important to know that a market economy is

characterized by interdependence?

Page 14: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

HOUSEHOLDSSELL, LOAN, LEASE, RENTTHE FOUR FACTORS OF

PRODUCTIONTO BUSINESS FIRMS

HOUSEHOLDS receive income from selling productive resources

to firms, which allows them to purchase final goods and services

Page 15: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

Business firms sell finished goods to households

BUSINESS FIRMS earn income from selling products to households, which allows them to

purchase productive resources

Page 16: Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

12. What determines the prices of land, labor, capital and

entrepreneurship in a factor market?