Download The Circular Flow of Economic Activity

Vocabulary
► Economic
Interdependence- Businesses,
households, and the gov’t all depend on
each other in order for the economy to run
smoothly.
► Factor Market- Where the 4 factors of
production are bought and sold.
► Product Market- Where firms sell their
goods and services and people buy them.
Warm Up?
► How
are you able to buy the things you
want and need?
The Circular Flow of
Economic Activity
EQ: HOW WOULD A DISRUPTION
IN ANY SEGMENT OF THE
CIRCULAR FLOW OF ECONOMIC
ACTIVITY IMPACT THE OTHER
PARTS?
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.
Households
are where you find
regular people who
work and consume in
our economy
Households
Firms
are the businesses that
produce, employ us,
and purchase in our
economy
Factor
Market
The factor market
is where the four
factors of
production are
bought and sold.
Households
Firms
The Factor Market
Factor
Market
Four Factors
Households
contribute their
land, labor, skills,
and capital to the
factor marker.
Households
Firms
Four Factors
Factor
Market
Four Factors
Those things are
put to use in firms.
Households
Firms
The Product Market
Four Factors
Factor
Market
Four Factors
The product
market is where
firms sell their
goods and
services and
people buy them.
Households
Firms
Product
Market
Four Factors
Households
Factor
Market
Four Factors
Firms send those
goods and
services into the
market.
Product
Market
Firms
Goods and Services To Be Sold
Factor
Market
Four Factors
Households
The goods and
services go back
into households.
Purchased Goods and Services
Product
Market
Four Factors
Firms
Goods and Services To Be Sold
Four Factors
Households
Purchased Goods and Services
Factor
Market
Four Factors
Wages and Salaries
Meanwhile, firms
put money back
into the factor
market in the form
of wages and
salaries.
Product
Market
Firms
Goods and Services To Be Sold
Four Factors
Income
Factor
Market
Four Factors
Wages and Salaries
This money is the
income
households earn.
Households
Purchased Goods and Services
Firms
Product
Market
Goods and Services To Be Sold
Factor
Market
Four Factors
Income
Four Factors
Wages and Salaries
Households spend
this money on
goods and
services
Households
Firms
Expenditures
Purchased Goods and Services
Product
Market
Goods and Services To Be Sold
Four Factors
Income
Factor
Market
Four Factors
Wages and Salaries
And businesses
earn revenue.
Households
Firms
Expenditures
Purchased Goods and Services
Revenue
Product
Market
Goods and Services To Be Sold
Four Factors
Income
Factor
Market
Four Factors
Wages and Salaries
Households
Firms
Expenditures
Purchased Goods and Services
Revenue
Product
Market
Goods and Services To Be Sold
A Simplified Version
RESOURCES
WAGES AND SALARIES
Households
Businesses
EXPENDITURES
FINISHED GOODS
THE ROLE OF GOVERNMENT
►
►
►
►
THE GOVERNMENT, MEANWHILE, PROVIDES LAW AND ORDER,
STABILITY AND STRUCTURE TO ALLOW OUR ECONOMY TO PROSPER
FURTHERMORE, THE GOVERNMENT ALSO PROVIDES GOODS AND
SERVICES THAT MIGHT NO OTHERWISE BE PROVIDED BY MARKET
DEMANDS……..
NATIONAL DEFENSE
MAINTAINING NATIONAL AND PUBLIC PARKS AND MONUMENTS
EQ: HOW WOULD A DISRUPTION IN ANY SEGMENT OF THE CIRCULAR FLOW
OF ECONOMIC ACTIVITY IMPACT THE OTHER PARTS?
REFLECTION
► What
is economic interdependence?
► What three elements depend on one another for
economic interdependence?
► What role do households play in the economy?
► What role do firms play in the economy?
► What role does the government play in the
economy?
► What type of economic system does the Island of
Mocha have?
Closing?
► What
type of economic system does the
Island of Mocha have?