Epf2j circular flow of economic activity

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Epf2j circular flow of economic activity

  1. 1. Households<br />Role of Producers & Consumers<br /> in a Market Economy<br />Services/income<br />Labor/payments<br />Income/goods<br />Taxes/labor<br />EPF2j. Circular flow of Economic Activity<br />Services/payments<br />Government<br />Businesses<br />Taxes/goods<br />
  2. 2. Circular Flow of Economics<br />A nation’s overall levels of income, employment and prices are determined by the interaction of spending and production decisions made by all households, firms, gov’t agencies and others in the economy.<br />2<br />
  3. 3. Impact of 1 Person<br />One person’s spending is other people’s income<br />When consumers make purchases, goods and services are transferred from businesses to household in exchange for money payments<br />That money is used in turn by businesses to pay for natural resources, human resources and capital goods and to pay taxes.<br />3<br />
  4. 4. Essential question:<br />What does the circular flow model show?<br />4<br />
  5. 5. 5<br />Households<br />Services/income<br />Labor/payments<br />Income/goods<br />Taxes/labor<br />Services/payments<br />Government<br />Businesses<br />Taxes/goods<br />
  6. 6. The circular flow model illustrates <br />the way in which resources, goods and services, and money flow among individuals, businesses, and governments in a market economy<br />6<br />
  7. 7. Essential question:<br />How does the circular flow model illustrate the way in which resources, goods and services, and money flow among individuals, businesses and govts in a market economy?<br />7<br />
  8. 8. Individual Households:<br />In a market economy, resources are owned by <br />the households; this includes natural, capital, <br />and human resources and entrepreneurial skills.<br />Individuals in households may:<br /> take their resources to market (called the factor market, referring to the factors of production)and sell them; <br />they may choose not to sell their resources (as in people who choose not to work for pay).<br />8<br />
  9. 9. Households, cont.<br />Households generally receive income from the sale of resources; <br />they can spend this money or save it. <br />Households may take their income to the goods and services market to buy the things they want.<br />9<br />
  10. 10. Business Firms<br />Go to the factor market and buy or hire the resources they need to produce goods and services<br />Firms take the money from those sales to order more from the businesses. <br />The businesses buy more resources to produce more and the money continues to flow through the economy.<br />10<br />
  11. 11. The Gov’t<br />Buys goods, services, and resources in order to produce certain goods and services. <br />Tax on income and sales is collected by the gov’t to pay for gov’t-provided goods and services (e.g., interstate highways, postal service). <br />11<br />

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