Circular Flow of Income
Our economy is an enormous, constant cycle, with money, products, and energy flowing back and forth
Economists refer to this as the Circular Flow of Economic Activity
Economic Interdependence
Businesses, households, and the government depend on each other in order for the economy to run smoothly.
2. Vocabulary
• Economic Interdependence- Businesses, households, and
the gov’t all depend on each other in order for the
economy to run smoothly.
• Factor Market- In economics , a factor market refers to
markets where services of the factors of production are
bought and sold, such as the labor markets, the capital
market, the market for raw materials
• Product Market- In economics, the product market is the
marketplace in which final goods or services are offered
for purchase by consumers, businesses, and the public
sector.
3. •A household is a person or a group of people that share
their income.
•A firm is an organization that produces goods and services
for sale.
•Firms sell goods and services that they produce to
households in markets for goods and services.
•Firms buy the resources they need to produce—factors of
production—in factor markets.
Vocabulary
4. The Circular Flow
• Our economy is an enormous, constant cycle, with
money, products, and energy flowing back and
forth
• Economists refer to this as the Circular Flow of
Economic Activity
• Economic Interdependence
• Businesses, households, and the government depend
on each other in order for the economy to run
smoothly.
11. The Product Market
Households Firms
Factor
Market
The product
market is where
firms sell their
goods and
services and
people buy them.
Product
Market
Four Factors Four Factors
22. The Circular Flow of Economic
Activity
Two
markets
exist in the
circular
flow
FACTOR
MARKET
PRODUCT
MARKET
23. The Circular Flow of Economic
Activity
FACTOR
MARKET
PRODUCT
MARKET
Two
markets
exist in the
circular
flow
24. The Circular Flow of Economic
Activity
FACTOR
MARKET
PRODUCT
MARKET
Resources;
Land, Labor
Capital
25. The Circular Flow of Economic
Activity
FACTOR
MARKET
PRODUCT
MARKET
Resources;
Land, Labor
Capital
$$$ pay for
Resources
26. The Circular Flow of Economic
Activity
FACTOR
MARKET
PRODUCT
MARKET
Resources;
Land, Labor
Capital
$$$ pay for
Resources
Finished
Goods
and services
27. The Circular Flow of Economic
Activity
FACTOR
MARKET
PRODUCT
MARKET
Resources;
Land, Labor
Capital
$$$ pay for
Resources
$$$ pay for
Product
Finished
Goods
and services