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Circular Flow Digram, The Economy, and Inequality
1
Marketplace, Circular Flow Model, and How it Affects You
Interdependency
1. How do individuals and families in house- holds depend on people in businesses?
2. How do businesses depend on individuals and families in households?
3. What is the role of government in
the circular flow of economic activity?
Product Markets
Firms: What are they and What do they do?
Where goods and services produced by firms are sold to households
A firm provides consumers with goods and services in exchange for consumer expenditure.
Household's spend their income on products that is turned into revenue for firms.
Firms also...
buy the resources they need to produce (Factors of Production) from Factor Markets
Circular Flow Model
Factor Markets
markets where services of the factors of production are bought and sold
Households: What are they and what do they do?
How does the economy work?
...Its so easy a cave man could do it.
What are factors of production?
- labor
- land
- capital
- entrepreneurship
a person or a group of people that share their income, purchase goods and services from Firms (businesses)
the factor markets gain these resource from the households.... it's a circle.
http://www.investopedia.com/video/play/factors-production/
Government's Role
- Government taxes businesses and households to pay for the productive resources it uses to provide certain kinds of goods and services to households and businesses. ( ex. public schools, police, fire department, roads)
- Also the government has laws and provisions in place so that the market can be a fair place for small and big businesses