Now let's see how the households interact with the market for resources. So firms um they they produce the goods and services and they bring them to the market for goods for sale, so they actually sell their goods and services in the market for goods, let's go to our green and what do they get in return? So in return for selling the goods and services, they get revenue right, they get money from the households in that sense. Um And in return for that, they spend money, they're gonna spend their money, right? We're gonna use this green to represent the flow of money, so they spend their money, maybe the earnings that they have and they spend it there in the market for goods and let's look at the firm's interaction with the market for goods.
So they go to the market for goods and they buy they buy goods, right, households, you go you buy cereal, you buy a tutoring service, right? Anything you're buying goods in the market for goods and services. So let's start with the interaction of the household with the market for goods. And down here we'll have the market for resources, right? The factors of production, market for resources and these resources, right? This includes not only the labor that the households are going to provide to the firms, but also includes things like the land, right? They own all the factors of of production and they're selling it to the firm's here. Up here, I'm gonna put the market for goods and services. And on the left will put the firms and they're gonna interact in two marketplaces. So here we'll put the households on the on the right and remember that the households own the factors of production, right? They own those resources. Um Let's start by putting the households and the firm's here on our circular flow diagram. Mine didn't totally fit on the screen, but I think we're gonna be okay. So here we have an empty circular flow diagram um and we're gonna fill it in now. Uh They take the factors of production, they take the resources that are sold by the households and they turn it into goods and services. Uh So next we have the firm and the firm is an organization that produces goods and services. So in the end the households own all the factors of production, they own the resources. Well, the idea is that in the end the households own those companies, right? It's actually people who own the companies that own the land. Okay, and you might think, hey there's firms that I know um companies that own the land that they're building is on. Excuse me, households own the factors of production, they own the resources, I'll put resources. Own the factors of production, households. And a quick note, I want to say, is that the households Mhm. So let's go ahead and define what the household and the firm are, and then we'll move down into the diagram first we have households and households we define as a person or a group of people that share income, they don't necessarily have to be related, they just have to share income. The circular flow diagram, it's a model that illustrates the relationship between firms households, goods and services and the factors of production. The circular flow model illustrates the interactions between these four groups.Alright, so now we're gonna look at a diagram that helps us simplify the inner workings of an economy.
So a typical economy consists of four main groups: households, businesses, governments, and foreign markets. Foreign markets buy and sell goods and services to and from our households, businesses, and governments. Governments provide services to businesses, households, and foreign markets, and collect taxes to pay for these. This is illustrated in the diagram below. The Circular Flow with Government and Foreign MarketsĪ more realistic picture of our economy also incorporates the economic interactions of two other main participants in our economy: a government and foreign markets.
This paints a simplified picture of how our economy works. In the graph below, a simple circular flow diagram shows the economic interactions between households and businesses. Households also may own land, capital (money), capital goods, and raw materials which can be used for production. Households provide (sell) their labor to businesses, and use the income to buy products. Sellers are businesses that buy resources, including land, labor, capital goods, and raw materials and use these to produce and sell goods and services. In its simplest form, an economy consists of buyers and sellers.
0 kommentar(er)
