Circular flow model

Circular flow model

represents how goods, services, and money moves through our economy

What are the two main players?

households & firms

Households

purchase/consume goods offered by firms

Firms

offers goods/services for households to consume

Where does it take place?

Product Market & Resource Market

Product Market

market for goods and services

Resource Market

market for factors of production

Market for goods and services (product market)

-where households purchase goods and services from firms in exchange for money

-where firms produce/sell goods and services to households in exchange for money

Market for factors of production (resource market)

-where firms purchase factors of production from households in exchange for (money, wages, or rent)

-where households sell their factors of production to firms in exchange for money

Point B on the Circular Flow model represents:

Businesses

What does point A represent on the Circular flow diagram?

Product Market

Which arrows represent the transaction between a landlord and a company?

4, 7

Businesses provide government with...

Taxes

Where do factors of production come from in the circular flow model?

Individuals

Someone purchases a car. This happens in which part of the model?

Product market

A person stocks shelves at a grocery store and receives a wage. They completed an exchange in which part of the model?

Factor Market

What are the four main parts of the circular flow diagram?

Factor Market, Product Market, Households, Firms

What drives the circular flow model?

Profit

Economic Growth occurs when a nation's total output of ___ increases.

Goods