Economic notes 2.01 Circular-flow diagram : A circular-flow diagram shows the flow of resources between four main players in the economy—households, businesses, the government, and the rest of the world.
The players: The government represents any lawmaking body (local, state, or national) that collects taxes and provides services to individuals and businesses.
Households include individuals like you and those living in the same home. Circular-flow diagrams interchangeably use the terms "households" and "individuals."
- Supplies labor in the factor market
-Buys finished products Business Firms include any company type that earns income from the sale of goods and services.
The rest of the world represents interaction with all those three groups in foreign countries. It refers to the international trade of import and export products.
The market:
The product market is the buying and selling of finished goods and services, like your morning latte.
-A person buys their favorite breakfast sandwich at a fast-food drive thru
The factor market is the exchange of the factors of production including components of land, labor, and capital. -Such as a coffee company purchasing equipment to process coffee beans.
-fast-food company buys the eggs to make a person's favorite breakfast sandwich
The financial market refers to the stock market and banking services, including
the loans all the other economic players use to meet their goals.
- person buys stock in the fast-food company that makes their favorite breakfast sandwich
The players: The government represents any lawmaking body (local, state, or national) that collects taxes and provides services to individuals and businesses.
Households include individuals like you and those living in the same home. Circular-flow diagrams interchangeably use the terms "households" and "individuals."
- Supplies labor in the factor market
-Buys finished products Business Firms include any company type that earns income from the sale of goods and services.
The rest of the world represents interaction with all those three groups in foreign countries. It refers to the international trade of import and export products.
The market:
The product market is the buying and selling of finished goods and services, like your morning latte.
-A person buys their favorite breakfast sandwich at a fast-food drive thru
The factor market is the exchange of the factors of production including components of land, labor, and capital. -Such as a coffee company purchasing equipment to process coffee beans.
-fast-food company buys the eggs to make a person's favorite breakfast sandwich
The financial market refers to the stock market and banking services, including
the loans all the other economic players use to meet their goals.
- person buys stock in the fast-food company that makes their favorite breakfast sandwich
