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The Circular Flow of Economic Activity

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Emily Kerwin

on 2 October 2013

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Transcript of The Circular Flow of Economic Activity

The Circular Flow of Economic Activity
Consumers
like you and me!

What Do Households have to offer in a market economy?
What are the two main characters in the market economy and what are different words for each?
Households
Factors of Production
What are Factors of Production?

Natural Resources
Capital (money, land, or time)
Human Resources (ideas)
Skills
Firms
Businesses and
Producers
Who do Households offer these resources to?
What do Firms pay in return for these resources?
Wages, rent, profit, etc.
What do Households do with this money?
Consumer expenditure for goods and services
What do Firms do with the money they get from consumer expenditure?
Final Goods and Services
So let's explain this a little more...
Main Idea #1:

Firms go to the Factor Market to buy or hire resources that they need to produce goods and services. They pay Households wages, rent and other forms of money for these resources. Firms use these resources to produce goods and services for sale in the Product Market
Main Idea # 2:

Households take their resources to the Factor Market and sell them for wages, rent and other forms of money. They then take this money to the Product Market to buy goods and services.
Before we start- Some clues to remember as you take notes...
Any words in RED are important vocabulary words and might be answers to a question on your notes sheet.
Anything written in a red circle is a question on your notes sheet. Look out for answers soon!
http://www.classzone.com/cz/books/econ_cnc/resources/htmls/animated_economics/ec02_anim_circflow.html
Want to review one more time?

The Factor Market
The Product Market
Where does this exchange take place?
Where does this exchange take place?
Where Households and Firms meet to make deals about "stuff that makes stuff"
Where Households and Firms make deals about final goods
Resources that are used to make final goods and services
Everything we buy (food, clothes, services, etc.)
Money spent to buy the things we want
Full transcript