circular flow chart of a pure market economy ©2012, tesccc

Circular Flow Chart of a Pure Market Economy

©2012, TESCCC©2012, TESCCC

Objectives1. Analyze a circular flow model of a pure

market economy.2. Explain how you act as both a buyer and

a seller.3. Explain the economic interdependence of

this model.


Geneva

I added a period at the end of sentence #2.

2 Sector Circular Flow Model

Our two sectors are :

1. Households

2. Business Firms


Product Market

Resource Market

Products = Goods & Services

$$$ Consumer Expenditures $$$$

$$$$Nat’l Income = Rent, Wages, Interest, Profit

Resources = Land, Labor, Capital, Entrepreneurship

Households Businesses


5



Two Sectors

6

Households

• Households are the owners of the resources, land, labor and capital. Households become the entrepreneurs. They sell these resources to the business firms.

©2012, TESCCC

Geneva

I added a period at the end of this sentence.

Resource Market




Business Firms

• Business firms make money payments back to households for the resources. This makes up what we call national income.

©2012, TESCCC

9

©2012, TESCCC©2012, TESCCCResource Market

$$ Nat’l Income = Rent, Wages, Interest, Profit $$



Geneva

I added a space after the word "interest".

10

Resource Market

• This exchange of resources for income payments takes place in what we call the resource market. Households are the sellers and business firms are the buyers.

©2012, TESCCC

Business firms

• Business firms take the resources and turn them into products. A product can be a good or a service. They then sell the products to the households.

©2012, TESCCC

Geneva

I added a period at the end of this sentence.

Geneva

Might consider changing the word "they" to "Businesses".

Product Market

Products =Goods & Services



Households

• Households use the income they earned from selling resources to purchase these products. This is called consumer expenditures.

©2012, TESCCC

Geneva

I omitted 1 space between the 2 sentences.

Product Market


$$$ Consumer Expenditures $$


©2012, TESCCC

Product Market

• This exchange of products for consumer expenditures takes place in the product market. The business firm is the seller and households are the buyers.


Product Market

Resource Market

Products=Goods & Services

$$ Consumer Expenditures $$

Nat’l Income = Rent, Wages, Interest, Profit




Real Flow

• This is the flow of resources from household to business firms and the flow of finished products from business firms to households.


Money Flow

• This is the money from business firms to households as income. From households to business firms it is consumer expenditures, consumers buying products.

©2012, TESCCC

Geneva

I omitted 1 space between expenditures and consumers.

Product Market

Resource Market



$$



Product Market

Resource Market



$$ $$$





Resource Market• Buyers: Business Firms• Sellers: Households

• Exchange: Factors of production (land, labor, capital and entrepreneurship)

for

National income

(rent, wages, interest, profit)

©2012, TESCCC

Product Market• Buyers: Households

• Sellers: Business Firms

• Exchange: Goods & services

for

Consumer Expenditures

part of GDP

©2012, TESCCC

Geneva

Consider: (part of GDP) instead of how it's written.

24

How do government actions affect the CFM and how is the CFM affected by the rest of the world?

http://tutor2u.net/economics/content/topics/macroeconomy/circular_flow.htm

©2012, TESCCC

Geneva

Not sure what the word "Con" means in the chart below.

circular flow chart of a pure market economy ©2012, tesccc

Documents

tesccc slide

product market products

resource market resources

households households

business firms business

flow of resources

profit resources

goods services resources