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Civics and Economics Chapter 9 Lesson 2
Transcript of Civics and Economics Chapter 9 Lesson 2
Ticket out of the Door
Circular Flow in Action
Circular Flow of Economic Activity
The inside arrows represent the flow of money between businesses and households
- Partnerships benefit from bringing more resources to the business than the single owner can
Partners share decision-making, risks, and profits
Partnerships (like proprietorships) also have the problem of unlimited liability
Lesson 2: Circular Flow of Economic Activity
Circular Flow of Economic Activity
Chapter 9: Operation of the
United States Economy
CE. 12b- The student will demonstrate knowledge of the structure and operation of the United States economy by explaining the circular flow that shows how consumers (households), businesses (producers), and markets interact
Standards and Objectives
1. Explain how resources, goods, services, and money flow in a mixed- market economy
2. Diagram the circular flow of the United States economy
3. Explain how the government is involved in the circular flow of goods and services in the United States economy
1. What do households do to contribute to the circular flow in the U.S. economy?
2. What do producers do to contribute to the circular flow in the U.S. economy?
3. What does the government do to contribute to the circular flow in the economy?
- Individuals and businesses make exchanges everyday; this results in a
of giving and recieving
- Economists illustrate these exchanges as a circular flow of economic activity, as shown in the diagram to the right
- A corporation is an organization with its own legal identity separate from its owners
- A state government gives a corporation a charter to operate
- A corporation can own property, make contracts, pay taxes, and can be sued
A corporation often has many owners, called stockholders.
- Stocks are shares of ownership in the corporation
- If the business does well, stockholders share in the profits
- If the business fails, stockholders lose the money they invested
- Stockholders are not responsible for the corporation's debts
Called limited liability
- This is a very important advantage of a corporation
People form corporations to protect themselves from liability (debt)
- Corporations can raise large amounts of money from stocks, but they cost a lot to set up
Circular Flow of the Economy
In the circular flow, the following actions take place:
Goods and services produced by businesses flow to consumers (household members) who buy them
Money flows back to businesses as consumers (household members) pay for these products
Members of the household own the resources the business needs to create and sell products (human resources, or labor, for example)
- People work for a business
Business in turn pay workers for their labor (human resource) by giving them wages (a paycheck)
- Household members (workers) can also invest their money in a business, and recieve interest back if the business is successful
- Household members use the wages they earned to buy products
- Businesses use their profits from sale of products to buy resources...AND THE FLOW CONTINUES
Government's Role in
the circular flow
5. Households and businesses pay taxes to the government
6. Government uses tax revenue to provide public goods and services
The outside arrows represent the flow of products and resources