Circular Flow Model
Shows economic flow of goods and services between households, businesses, and government through product and resource markets
Key Factor in Circular Flow model
market (place where buyers and sellers meet to exchange goods and services for money)
Households in the Resource Market
Owners of the productive resources (factors of production)
Households in the Product Market
Consumers of goods and services
Businesses in the Resource Market
Consumers of the productive resources (factors of production)
Businesses in the Product Market
Producers of goods and services
Government
levy taxes on households and businesses in order to provide certain benefits to everyone
Government taxes
leak out of the circular flow model and then spending injects them back into the economy
Economic interdependence
The flow of money in a circular flow between households, businesses, and government, then each depends on the other for the economy to function smoothly
Household
individual or group that occupy a single housing unit (residence)
Business (Firms)
individual or group that work to produce a good or service
Product Market
goods sold for final consumption to a consumer (which could be a household, business, or the government) are sold in the product market
Factor (Resource) Market
to improve production, producers buy the four factors of production (land, labor, capital, and entrepreneurship) in the resource market
Role of Money
mechanism that the market uses to facilitate exchange
Law of Demand
As the price of good rises, the quantity of the good consumers are willing and able to buy will decrease
Law of Supply
as the price rises the quantity a seller is willing and able to sell will increase
Equilibrium
the quantity of a good that buys are willing and able to buy matches the quantity of a good that producers are willing and able to sell
Market Supply Curve
all the quantities of a good, service, or resource sellers are willing and able to sell at each price
Quantity Supplies
amount of a good, service, or resource sellers are willing and able to sell at one specific price
Market Demand Curve
All the quantities of a good, service, or resource buyers are willing and able to buy at each price
Quantity Demanded
Amount of a good, service, or resource buyers are willing and able to buy at one specific price
Demand
When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices
Demand Schedule
a table that shows the quantity demanded at different prices in the market
Supply
relationship between a range of prices and the quantities supplied at those prices
Quantity Supplied
only a certain point on the supply curve or one quantity on the supply schedule
Supply Schedule
a table that shows the relationship between the price of a good and the quantity supplied
4 Factors of Production
land, labor, capital, and entrepreneurship
Expenditure
the action of a consumer spending money (household to product market)
Factor payments
rent, wages, interest, profit
Studied by 33 People