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Circular Flow Diagram. Key terms to understand Products: Items consumers (who live in households) purchase Examples of products: –GOODS: clothes, shoes,

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Presentation on theme: "Circular Flow Diagram. Key terms to understand Products: Items consumers (who live in households) purchase Examples of products: –GOODS: clothes, shoes,"— Presentation transcript:

1 Circular Flow Diagram

2 Key terms to understand Products: Items consumers (who live in households) purchase Examples of products: –GOODS: clothes, shoes, gas, food, telephones, computers, televisions, –SERVICES: entertainment, legal services, cleaning services, accounting services Products are sold in a product market

3 Factors of Production (resources) Land: All natural resources –Soil, oil, coal, livestock, fish, trees *Money paid for land is RENT Labor: All work, physical and mental *Money paid for labor is WAGES Capital: Goods used to produce products –Truck, hammer, saw, oil rig *Money paid for capital is INTEREST (often borrowed) Entrepreneurship: The organization of a business, using land, labor, and capital *Money paid for entrepreneurship is PROFIT

4 Consumers (Households) Producers (Businesses)

5 Consumers (Households) Producers (Businesses) A market is anything that brings together buyers and sellers

6 Consumers (Households) Producers (Businesses) Product Market (goods/services)

7 Consumers (Households) Producers (Businesses) Product Market (goods/services) Factor Market (resource market) (land, labor, capital, entrepreneurs)

8 Consumers (Households) Producers (Businesses) Product Market (goods/services) Resource Market (land, labor, capital, entrepreneurs) Get a job!

9 Consumers (Households) Producers (Businesses) Product Market (goods/services) Resource Market (land, labor, capital, entrepreneurs) Get a job! Hire you!

10 Consumers (Households) Producers (Businesses) Product Market (goods/services) Factor Market (land, labor, capital, entrepreneurs) Get a job! Hire you! Make stuff!

11 Consumers (Households) Producers (Businesses) Product Market (goods/services) Factor Market (land, labor, capital, entrepreneurs) Get a job! Hire you! Make stuff! Buy stuff!

12 Consumers (Households) Producers (Businesses) Product Market (goods/services) Factor Market (land, labor, capital, entrepreneurs) Get a job! Hire you! Make stuff! Buy stuff! Spend $!

13 Consumers (Households) Producers (Businesses) Product Market (goods/services) Factor Market (land, labor, capital, entrepreneurs) Get a job! Hire you! Make stuff! Buy stuff! Spend $! Revenue $

14 Consumers (Households) Producers (Businesses) Product Market (goods/services) Factor Market (land, labor, capital, entrepreneurs) Get a job! Hire you! Make stuff! Buy stuff! Pay You! $ Spend $! Revenue $

15 Consumers (Households) Producers (Businesses) Product Market (goods/services) Factor Market (land, labor, capital, entrepreneurs) Get a job! Hire you Make stuff! Buy stuff! Pay You! $ Get Paid! $ Spend $! Revenue $

16 Consumers (Households) Producers (Businesses) Product Market (goods/services) Factor Market (land, labor, capital, entrepreneurs) Get a job! Hire you! Make stuff! (goods and services) Buy stuff! (goods and services) Pay You! $ wages Get Paid! $ Spend $! Revenue $ All parts of the circular flow diagram are dependent on all other parts!

17 Things to remember STUFF (land, labor, capital, goods, services) and MONEY (wages, rent, interest, purchasing $) flow in opposite directions

18

19 Production Possibilities Frontiers

20 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza)

21 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources

22 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources

23 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs a b.

24 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs a b.

25 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs a b Cost = 40 pizzas Benefit = 20 robots.

26 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots.

27 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c Inefficient – unemployed resources.

28 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources.

29 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources d.

30 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources d Unattainable with current resources and technology.

31 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources d Unattainable with current resources and technology.

32 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources d Unattainable with current resources and technology Economic Growth. Economic Growth = SOL Increased quality of human resources (EDUCATION) or technology (INVESTMENT)

33 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources d Unattainable with current resources and technology Economic Growth U.S. Developing nation Economic Growth = SOL Increased quality of human resources (EDUCATION) or technology (INVESTMENT)

34 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources d Unattainable with current resources and technology Economic Growth NOW FUTURE U.S. Developing nation Economic Growth = SOL Increased quality of human resources (EDUCATION) or technology (INVESTMENT)

35 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources d Unattainable with current resources and technology Economic Growth NOW FUTURE U.S. Developing nation Economic Growth = SOL Increased quality of human resources (EDUCATION) or technology (INVESTMENT) Economic Interdependence

36 Production Possibilities Frontier (PPF/PPC) Capital Goods (Robots) Consumer Goods (Pizza) Scarcity – unlimited wants, limited resources Opportunity costs and trade-offs Efficiency – two kinds Productive: producing at the least cost (any pt. on the PPF) Allocative: producing the goods and services most wanted by society (a particular pt. on the PPF) a b Cost = 40 pizzas Benefit = 20 robots c policy Inefficient – unemployed resources d Unattainable with current resources and technology Economic Growth NOW FUTURE U.S. Developing nation Investment = purchase of capital goods Economic Growth = SOL Increased quality of human resources (EDUCATION) or technology (INVESTMENT) Economic Interdependence

37 The End


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