My documents contains lecture notes from slides and 5th edition microeconomics textbook. The notes focuses on demand and supply, explaining how market forces work together to derive equilibrium prices and quantity , and it also examines them both individually.
CONCEPTS related to the circular flow:
Mind-the-Gap
Enjoy Economics
3
Adapted by: Economics Subject Advisors 2018
, Description / Definition
• The circular-flow model of the economy is a simplification showing how the
economy works and the relationship between income, production and spending
in the economy as a whole.
• The circular-flow model of an open economy shows the workings of an
economy that is open to foreign trade.
• It is different to a closed economy because it includes the foreign sector.
Diagram
(Enjoy Economics)
Participants:
Households
• There is a flow of money and goods and services between the household
sector and business sector.
• Households are the owners of the services of factors of production and they
place their factors of production on the market so that it can be bought.
• Households earn income in the form of wages by selling their factors of
production to business.
Business Sector
• Business uses factors of production to produce goods and services on which
the household sector spends their income
• Businesses place goods and services on the product market which is bought by
households to satisfy their needs
• Business receives an income.
• State / Government
4
Adapted by: Economics Subject Advisors 2018
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