Download Circular Flow Diagram

Circular Flow
Diagram
Created by D. Miller
[email protected]
Circular Flow Diagram
The circular flow diagram is in the shape of a circle because all of the
components work together and without one, it would not function.
Producers/Businesses
The producer is responsible for making, or
producing, the products and providing the
services.
The producer requires resources from the
resource market to make the output.
The producer then supplies their output to
the product market.
What if the Producers/Businesses
component was removed from the
diagram?
 There would be no one to make goods or
provide services.
 Consumers would need to provide for
themselves (this means growing their own food,
making their own cars, etc.)
 Consumers would not need to provide their labor
to producers, and, in turn, would not receive an
income.
Product Market
 The product market is where the output, or
goods and services made by producers, are
sold.
 Goods are tangible items, which means they can
be held.
 Services are intangible items, which means they
cannot be held.
 This market allows consumers to easily find the
goods and services they need without having to
search for someone who produces or provides
them.
What if the product market was
removed from the diagram?
There would be no one to connect the
producer and the consumer.
Consumers and producers would need to
find each other in order to make a sale.
This can be very hard if they live many,
many miles away!
Consumers/Households
The consumer buys, or “consumes”, the
goods and services from the product
market.
The consumer offers their labor resource
to the resource market.
In return for their labor, consumers receive
income which helps them pay for their
consumption of goods and services.
What if the Consumers/Households
component was removed from the
diagram?
This would be worse than if there were no
producer, because there would be no one
to benefit from the goods and services the
producer provides.
There would be no one giving the labor
resource to the resource market.
Resource Market
The resource market is where the
resources needed by producers are
brought together.
The resources in this market are: land,
labor, capital, and entrepreneurial talent.
This market allows producers to easily find
the resources they need.
Types of Resources
Land: the piece of property where the
buildings and landforms will be placed.
Labor: the physical work that is needed to
make the products or provide the services.
Capital: the machines that is used to
produce the products.
Entrepreneurial Talent: the bright ideas
that people contribute to making or
improving the goods and services.
What if the resource market were
removed from the diagram?
There would be no one to connect the
producer to the resources needed to make
the goods or provide the services.
Producers would need to find the
resources they needed, which is harder
than being able to find them in one place.
Circular Flow Diagram Internal
Resources
Circular Flow Diagram Home Page
Circular Flow Diagram Worksheet
Circular Flow Diagram Worksheet
Answers
Circular Flow Diagram Test
Circular Flow Diagram Test Answers
Circular Flow Diagram On-Line
Resources
http://www.econedlink.org
Economic Skills for Elementary Students
http://go.hrw.com/secure/ss/general/utpdf/
zvch21S1.pdf
Lesson Main Page
http://ecedweb.unomaha.edu/K12/home.cfm
The End