applied economics

1. Applied Economics
General Academic Strand | Accountancy, Business, and Management
Lesson 6.1
The Circular Flow of Economic
Activities

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3. Households are
composed of individuals
consuming goods and
services. We all belong to
this sector.
3

4. Meanwhile, the business
sector provides the
household’s needs for
goods and services.
4
4

5. What is the
interrelationship
between
households and
businesses?
5

6. Learning
Competency
6
Analyze how the flow of activities in
households and businesses affects the
entire economy (Additional competency
for enrichment).

7. Learning
Objectives
● Analyze how the flow of activities in
households and business sectors affects
the economy.
● Conduct a survey of macro and micro
environments affecting business in a
locality.
7

8. Let’s
Connect
Households buy goods and services from
businesses. Businesses on the other hand get
the needed factors for production from
households.
For this activity, work by pairs. One will
represent households and the other will
represent businesses.
Household and Business Exchange
8

9. Let’s
Connect
1. The student that represents the household
will identify three goods and two services that
he buys from different businesses.
2. The student that represents the business will
now identify the different companies or
corporations that provide those products.
Household and Business Exchange
9

10. Let’s
Connect
3. Now work together in identifying the prices of
those goods and services. Use their average
prices.
4. Still working together, identify the input or
raw materials needed to produce those goods
or services.
Household and Business Exchange
10

11. Let’s
Connect
1. Why do businesses charge the consumers
that price?
11

12. Let’s
Connect
2. How do households contribute to the
production of goods and services offered by
the different businesses?
12

13. Let’s
Connect
3. How do households get income from
businesses?
13

14. Essential
Question
How will the flow of activities between
households and businesses affect the entire
economy?
14

15. 15
Circular Flow of Economic Activities

16. Circular Flow of Economic Activities
Household Sector
● It is the consuming
unit.
● It owns the resources
or factors of
production (land,
labor, capital, and
entrepreneurship).
16

17. Circular Flow of Economic Activities
Business Sector
● It is is the basic
producing unit.
● It transforms input or
factors of production
into outputs or goods
and services.
17

18. Circular Flow of Economic Activities
Government
● It acts as a regulating
unit in an economy.
● It collects money in the
form of taxes from
households and firms.
18

19. Markets and the Circular Flow
● There are two basic kinds of markets households
and firms engage in.
● These are the input (factor) and the output
(product) market.
19

20. Markets and the Circular Flow
Input Market (Factor Market)
● Production of goods and services requires input or
resources. These resources are also called factors
of production.
● The household offers these resources for sale to
firms through the input or factor markets.
20

21. Markets and the Circular Flow
Output Market (Product Market)
● The resources that firms buy from households are
transformed into goods and services. These are
exchanged in the output or product markets.
● The income that households earn from the sale of
resources is used to consume goods and services.
21

22. Check
Your
Progress
22
22
How does the business sector pay for the
factors of productions they use to produce
goods and services?

23. Government and the Circular Flow
The government acts as a
regulating agency that
binds the households and
businesses to ensure that
a fair and equitable trade
is achieved.
23

24. Government and the Circular Flow
The government has to
collect a sum of money
from both the households
and firms through taxes,
fines, and dues.
24

25. Check
Your
Progress
25
25
How does the household sector afford the
goods and services they buy from the business
sectors?

26. Try This!
Identification. Write the correct answer in the provided
space.
1. This is used to produce goods and services.
26

27. Try This!
2. This is the sector that produce goods
and services.
27
Identification. Write the correct answer in the provided
space.

28. Try This!
3. This term describes the payment for the
use of land.
28
Identification. Write the correct answer in the provided
space.

29. Try This!
4. This term describes the payment for the
use of capital.
29
Identification. Write the correct answer in the provided
space.

30. Try This!
5. This is the sum that the government collects
to finance public goods and services.
30
Identification. Write the correct answer in the provided
space.

31. Wrap-Up
31
● The interrelationship between households and
businesses shows the flow of goods and
services and the flow of income between the
two sectors.
● The household is considered the basic
consuming unit in a circular flow of the
economy.
● The government acts as a regulating agency
that binds the households and businesses to
ensure that fair and equitable trade is achieved.

32. 32
Challenge
Yourself
List down two items in each factor of
production needed to produce textiles:
● Land
● Labor
● Capital
● Entrepreneurship

33. Photo Credits
Slide No. 3: Walmart Customer Selects a Fabric Reintroduced to Product Mix by Walmart Corporate is licensed
under CC by 2.0 via Creative Commons.
Slide No. 4: Solar wafer manufacturing by OregonDOT is licensed under CC by 2.0 via Creative Commons.
Slide No. 5: Supermarket-WP_20130720_002 by Nicola since 1972 is licensed under CC by 2.0 via Flickr
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34. Bibliography
Mankiw, N. Gregory .2014. Principles of Economics. 7th Edition. Microeconomics. Ohio, USA: SouthWestern Cengage
Learning.
Murakami, Enerelt, Shimizutani, Satoshi and Yamada Eiji, “Projection of the Effects of the COVID-19 on the Welfare of
Remittance-Dependent Households in the Philippines”. Economics of Disasters and Climate Change (2020):1-14,
https://doi.org/10.1007/s41885-020-00078-9.
34