Circular Flow Diagram

Households in the factor market

owners of the productive resources

Businesses in the factor market

consumers of the productive resources (factors of production)

House holds in the product market

consumers of goods and services in the circular flow model

Individual payments

money payments earned by households in exchange for productive resources

Businesses (firms) in the productive market

producers of goods and services in the circular flow model, they sell goods and services to households

Revenue

money payment to businesses

profit

payment to entrepreneurs if there is any revenue remaining after all costs of production/operation have been paid

government

consumer in both f actor and products markets. IT makes income payments in exchange for productive resources

Circular flow model

shows the characteristics and relationships that exist among households, businesses, and government

Transfer payments

money payments made by governments to households and or businesses without receiving and goods, services, of factors of productions

microeconomics

study of how economic choices individuals and firms make and how they create markets

market economy

economy in which decisions regarding investment, production, and distribution are based on market determined supply and demand,

supply

the willingness and ability of a producer to produce and sell a product

demand

the desire to have some good or service and the ability to pay for it