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The Circular Flow Model

Learn how businesses, individuals, and resource markets interact in a free market system. Explore transactions in product and factor markets, pricing determinants, and the importance of interdependence in a market economy.

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The Circular Flow Model

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  1. The Circular Flow Model

  2. Free Market System Businesses Individual

  3. Free Market System Resource/Factor Market Businesses Individual Product Market

  4. Free Market System Cost $ Income Resources Resource Market Resources Land Labor Capital Entrepreneur Businesses Individual Goods & services Purchased Goods & services sold Spending Revenue (Not Profit) Product Market

  5. Free Market System Supply Demand Cost $ Income Resources Resource Market Resources Land Labor Capital Entrepreneur Individual Businesses Goods & services Purchased Goods & services sold Spending Revenue (Not Profit) Demand Supply Product Market

  6. The Circular Flow Model Supply Demand Cost $ Income Resources Resources Goods & services sold Goods & services Purchased Revenue (Not Profit) Spending Demand Supply

  7. Give 3 examples of transaction you made this week in the product market. Give an example of a transaction you or your family made this month in a factor market. How are businesses connected to the factor and product market? 4. What determines the prices of land, labor, capital and entrepreneurship in a factor market? 5. Where do resource owners get the money to buy goods and services in the product market? 6. Where do business firms get the money to pay resource owners for their land, labor, capital and entrepreneurship in factor markets? 7. Why is it important to know that a market economy is characterized by interdependence?

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