This document discusses the circular flow model in economics. It provides an example of a hair stylist receiving payment for her services and using that money to purchase coffee. The document then explains that economists use the circular flow model to represent the continuous flow of money and goods between households, businesses, and the government in an economy. It outlines that households sell factors of production like labor in exchange for income, which they use to buy goods and services from businesses. Businesses combine factors of production to make goods and services and pay households for their inputs. Both households and businesses pay taxes to the government. This circular exchange of money and resources occurs continuously within the borders of a country.

1. CIRCULAR FLOW
• VC KHUMALO
• ECONOMICS
• 26 AUGUST 2021

2. One may ask what is a
circular flow and why it is
important?
Let us think of something interesting by looking at a scenario:
A hair dresser receives R10 from a client after fixing their Hair in a salon. The stylists
decides to walk down the streets in the evening and realizes that the street lights are on.
This gives her more light and proceeds to go into a coffee shop and buys a medium coffee
for R8.

3. Now that scenario is a basic day to day
activities
But, economists do not think so
They have already identified what is
called a circular flow.

4. What is a closed Circular flow?
A circular flow shows the flow of the goods and
services and money in an economy within the
borders of the country.

5. Who does all of this?
It’s what in economics we call economic
participants!
The first category is the households

6. Households
- The main individuals who create
the cycle of goods and services
and money .
- This is done through them
selling their factors of
production to the factor market
in an aim of receiving
remuneration
- Also pay tax to the government
in exchange of free goods.

7. REMEMBER THE SCENARIO STYLIST
USING
THE
STREET
LIGHT:
FREE
GOOD
BUYS
COFFEE
WITH THE
REMUNARA
TIONS
RECEIVED
Stylist provides
her services
(factors of
production)
For
cash(REMUNAR
ATIONS)

8. Firms or businesses
- Produces goods and services
- The business buy the factors of production from the factor market
- Pay tax to the government
Business (salon)
Stylist
Pays
the
stylist
Gives hair
service

9. Government
- Collects tax and provides for public goods and services

10. REMEMBER THE SCENARIO STYLIST
USING
THE
STREET
LIGHT:
FREE
GOOD
BUYS
COFFEE
WITH THE
REMUNARA
TIONS
RECEIVED
Stylist provides
her services
(factors of
production)
For
cash(REMUNAR
ATIONS)

11. Therefore the
flow is circular.

12. QUESTIONS?

13. • END OF LESSON THANK YOU!

14. REFERENCE :
Slides
a) Naag, N. (2018, January 23). Circular flow of money [Slides].
SlideShare. https://www.slideshare.net/neetinaag/circular-flow-of-money
b) Bentley, M. (2017, January 2). Circular flow. SlideShare.
https://www.slideshare.net/mattbentley34/circular-flow-70585593
c) Peggy, M. (2018, September 7). The circular flow. SlideShare. https://
www.slideshare.net/mmankgitlanapeggy/the-circular-flow-113266564
d) Vaverma, R. (2019, May 16). circular flow of an Economy. SlideShare.
https://www.slideshare.net/reevaverma/circular-flow-of-an-economy
e)Agarwal, K. (2015, May 7). circular flow of income. SlideShare. https://
www.slideshare.net/kinjalagarwal/presentation2-47853219
Pictures
a) Shinn, J. (2019, November 21). Circular flow diagram in economics
[Graph]. Circular Flow Diagram.
https://study.com/cimages/videopreview/videopreview-full/circular-flow-di
agram-in-economics-definition-and-example_122493.jpg

15. b)Tierney, H. (2020, March 29). The circle of lifelines [Graph]. The Circle of
Lifelines. https://
www.google.com/url?sa=i&url=https%3A%2F%2Fwww.journalgazette.net%
2Fopinion%2Fsunday-centerpiece%2F20200329%2Fthe-circle-of-lifelines&p
sig=AOvVaw0WhaIYdJmx_qLR8KZoEY6Q&ust=1630174536830000&source
=images&cd=vfe&ved=0CAsQjRxqFwoTCLj38trn0fICFQAAAAAdAAAAABAE
c) United States Government. (n.d.). Circular flow diagram [Graph]. The
Circular Flow.
https://www.google.com/url?sa=i&url=https%3A%2F%2Fen.wikipedia.org%
2Fwiki%2FCircular_flow_of_income&psig=AOvVaw2f8Bmztd0vQlrA53vwdX5
P&ust=1630175051623000&source=images&cd=vfe&ved=0CAsQjRxqFwo
TCODVjMrp0fICFQAAAAAdAAAAABAE