Download Unit 5, Lesson 12 The Circular Flow Model

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Business Economics
Unit 5, Lesson 12
The Circular Flow Model
Copyright © 2008–2011 National Academy Foundation. All rights reserved.
The circular flow model
Households and individuals
Households and
individuals sell
labor in the
factor markets
and buy
products in
the product
markets.
What are some
resources you
sell?
Firms
Firms, or
businesses,
sell finished
goods and
services in the
product
markets and
buy land,
labor, and
capital in
the factor
markets.
Do you sell
anything to a
business?
What do you
sell?
Government
The
government
collects taxes
from both
firms and
individuals/
households;
in return it
provides
public
services.
Do you think
government
belongs in
the center of
the circular
flow? Why or
why not?
Product markets
Product
markets are
where firms,
individuals and
households,
and
government
buy and sell
goods and
services.
Name some
products and
services that
are traded in
the product
markets.
Factor markets
The factor
markets are
where firms,
individuals and
households,
and government
buy and sell
the factors of
production—
land, labor,
and capital.
What factors
may be
traded in the
production of
buildings?
The circular flow model in action
The importance of the circular flow model
The circular flow
model shows how
the individual actors
in the US economy
interact and depend
upon each other to
create a healthy
economy.