Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments...
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Understanding the circular flow of income
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Transcript of Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments...
Understanding the circular flow of
income
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
1. Give three examples of resource owners
• 1.
• 2.
• 3.
2. Define a business firm
3. What is the product market?
4. Give three examples of transactions you made this week in
the product market:
• 1.
• 2.
• 3.
5. What is the factor market?
6. Give an example of a transaction you or your family made this week
in the factor market:• 1.
• 2.
7. How are business firms connected to the factor and
product markets?
8. How are households connected to the factor and
product markets?
9. Where do resource owners get the money to buy goods and services in the product
market?
10. Where do business firms get the money to pay resource
owners for their land, labor, capital and entrepreneurship in
the factor market?
11. Why is it important to know that a market economy is
characterized by interdependence?
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
Business firms sell finished goods to households
BUSINESS FIRMS earn income from selling products to households, which allows them to
purchase productive resources
12. What determines the prices of land, labor, capital and
entrepreneurship in a factor market?
