Circular Flow

1. Circular Flow

2. Individuals function as both consumers and producers

3. Consumers • Buy goods and services in product market • Example: Buying food at a local grocery store is an exchange in a product market

4. Resource owners • As resource owners, individuals function as producers by supplying productive resources to businesses, which use these resources to produce goods and services • Transactions that occur in resource markets are businesses paying wages to workers, rent to landowners or interest on loans for plant and equipment.

5. Circular Flow Model

6. Questions • 1. According to the diagram, in which markets do businesses give money-income payments to households in exchange for their productive resources? • 2. In which markets do households give money payments to businesses in exchange for goods and services?

7. Government in the Circular Flow

8. Questions • 1. Give an example of a productive resource that households sell to government. • 2. Give an example of a good or service that businesses sell to government. • 3. Give an example of a good or service that government provides to households in exchange for money payments, mainly taxes. • 4. Give an example of a good or service that government provides to businesses in exchange for money payments.

9. Transactions • 1.Ted sold the trees on 500 acres of land he owned to a lumber company that cut them down to make lumber.

10. 2. Maria received a $200 interest payment from a business to which she had lent money.

11. 3.The Amalgamated Shoe Company sent 5,000 pairs of shoes to a major discount store.

12. 4.Terry paid $75 for a new jacket.

13. 5. A business paid Amy $4,000 a month to use a building she owns.

14. 6.Jane received a paycheck for $675.80 from her employer.

15. 7. The Ajax Cleaning Company came to Frank’s house and cleaned his carpet.

16. 8. Larry earned $35,000 last year from the restaurant he owns.

17. 9. Jason bought a new battery for his car.

18. Sara paid the bill for her charge card at a department store.

19. 10. Sara paid the bill for her charge card at a department store.

20. Work with a partner • On the next slide, read the scenario, when you have finished reading, raise your hand. You will answer 9 questions based on the next slide so write down important information in your notes • Write down your answers to the 9 questions and be prepared to share with the class

21. Garland is a small farming community in the Midwest. For many years most people in Garland have either worked on farms or owned small businesses, or they have been unemployed. Last December a manufacturer of office furniture bought 50 acres of land and announced it would build a new factory. The company would employ 250 workers and have a yearly payroll of nearly $6,000,000. Describe the effects of the new factory on the items below. Then place the number of each item on the circular-flow diagram to indicate whether the activity takes place in the product market or factor market.

22. the number of people wanting to buy homes in Garland • the sales of clothing and other goods in Garland’s stores • 3. the number of people employed in Garland’s stores • 4. the number of stores rented in Garland • 5. the number of cars sold at the local dealership • 6. the wages paid to local construction workers • 7. the number of tickets sold at the local movie theater • 8. the profit earned by local grocery stores • 9. Suppose you own a business that sells insurance in Garland. How will the new factory create entrepreneurial opportunities for you?