Micro-Econ Ch.1 Circular Flow Model & Players

Circular Flow: Role of Households

Buy and consume goods/services; own and sell factors of production; earn income, pay taxes, receive transfer payments, and provide savings.

Circular Flow: Role of Firms

Produce and sell goods/services; hire and use factors of production; earn revenue, pay for inputs (wages, rent, profit), pay taxes, and receive loans.

Circular Flow: Role of Government

Taxes households and firms, distributes transfer payments to households, and purchases goods and services.

Circular Flow: Role of Foreign Sector

Buys domestic goods and services (exports) and sells goods and services to domestic markets (imports).

Circular Flow: Role of Financial Markets

Receives savings from households and extends loans to firms.

Product Markets vs. Resource Markets

Product Markets: Markets where firms sell and households buy goods/services. Resource Markets: Markets where households sell and firms buy factors of production.