The Circular Flow Of Economic Activity

Answer on a sheet of paper…

• 1) When you spend money, where do you spend it?

• 2) Think of the sources of income in your household. Where does your household income come from?

• NOTE: List AT LEAST three things for number one.

Microeconomics

• The study of how individuals and firms make decisions to allocate scarce resources.

With a partner

• Look at your lists.

• What do your answers to number 1 have in common with each other?

• What do your answers to number 2 have in common with each other?

• Write these down on one sheet of paper under the headings “#1 in common”, and “#2 in common”.

Market

With your partner…

• Brainstorm words that you associate with the word “market”.

• 5 words per group.

• Write them down.

Market Definition• A market is any place where the sellers of

a particular good or service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a potential transaction.

• It does not have to be a physical place…(Internet example)

With your partner

• Brainstorm a list of things that a business or businesses might spend money on.

• Be specific!

• 5 entries per group.

• Write them down.

So Far...

• 3 actors in the economy (it is a circular flow!):– Producers (Firms)– Consumers (Households)– Government (taxes)

• Consumers buy goods and services.

• Producers buy the factors of production.

• It doesn’t matter where you start in the process, it works in a circular flow.

On a separate sheet of paper….

Copy the circular flow diagram on the board.

By the Way, I am going to erase the arrows!!

How should the arrows be labeled?

In other words, which way does Money flow?

Which way does Products flow?

Discuss with your partner….

The 1st 3 students/groups with correctly labeled graphs get

incentive!

Group Quiz

Each student/group should enter answers on their own sheet of paper to turn in at the end. 1

answer sheet per group. Remember both names!

1) Which numbers show the flow of goods and services?

• A) 1, 3

• B) 5, 7

• C) 4, 2

• D) 8, 6

2) Which arrows include Mr.Odren’s efforts in composing a

lesson?

• A) 1, 3

• B) 5, 7

• C) 4, 2

• D) 8, 6

3) Which arrows would include consumers buying video games?

• A) 1, 3

• B) 5, 7

• C) 4, 2

• D) 8, 6

4) Which numbers show the flow of interest, wages, rent, & profits?

• A) 1, 3

• B) 5, 7

• C) 4, 2

• D) 8, 6

5) What do numbers 1, 3, 6, & 8 have in common?

• A) They’re goods.

• B) They’re services.

• C) They’re FOP.

• D) They’re money.

Circular Flow

• 6) What does Circular Flow tell us about the economy?