1. 28

2. 29 The Circular Flow Spending Goods and services bought Revenue Goods and services sold Labor, land, and capital Income = Flow of inputs and outputs = Flow of dollars Factors of production Wages, rent, and profit FIRMS Produce and sell goods and services Hire and use factors of production Buy and consume goods and services Own and sell factors of production HOUSEHOLDS Households sell Firms buy MARKETS FOR FACTORS OF PRODUCTION Firms sell Households buy MARKETS FOR GOODS AND SERVICES

3. 30 The production possibilities frontier Production possibilities frontier A B Kilograms of wool produced 2200 600 0 700 2000 3000 1000 Litres of wine produced

4. 31 The equilibrium of supply and demand Price of Ice-Cream Cone 0123456789101112 Quantity of Ice–Cream Cones 13 Supply Demand