Unit II: Circular Flow Models
Circular flow models show the flow of money, goods and services, and factors of production through the economy. There are three parts:
A household is a person or group of people who share an income. They own the factors of production.
Firms are organizations that produce goods and services for sale. They produce goods by taking inputs (factors of production) and turning them into outputs (finished products).
The government is the provider of public goods and services. They are also the demanders of both private and public goods as well as factors of production.
Within a circular flow model, there are two types of markets:
Product markets are where goods and services are bought and sold.
Factor markets, or resource markets, are where factors of production and resources are bought and sold.
For additional information, refer to this video from Khan Academy as well as this article from ThoughtCo.:
Circular flow of income and expenditures: https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/economic-iondicators-and-the-business-cycle/21/v/circular-flow-of-income-and-expenditures?modal=1
The circular-flow model of the economy: https://www.thoughtco.com/the-circular-flow-model-of-the-economy-1147015
A household is a person or group of people who share an income. They own the factors of production.
Firms are organizations that produce goods and services for sale. They produce goods by taking inputs (factors of production) and turning them into outputs (finished products).
The government is the provider of public goods and services. They are also the demanders of both private and public goods as well as factors of production.
Within a circular flow model, there are two types of markets:
Product markets are where goods and services are bought and sold.
Factor markets, or resource markets, are where factors of production and resources are bought and sold.
For additional information, refer to this video from Khan Academy as well as this article from ThoughtCo.:
Circular flow of income and expenditures: https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/economic-iondicators-and-the-business-cycle/21/v/circular-flow-of-income-and-expenditures?modal=1
The circular-flow model of the economy: https://www.thoughtco.com/the-circular-flow-model-of-the-economy-1147015
This chart is really helpful and clarifies the topic a lot!
ReplyDeleteI'm glad it helps! It's helping me remember the model as well.
DeleteI know they are not on the chart, but can the government buy and sell to both households and firms?
ReplyDelete