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Circular Flow of a Market Economy Have Notebooks out Warm up: Why are entrepreneurs needed in the economy?

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Presentation on theme: "Circular Flow of a Market Economy Have Notebooks out Warm up: Why are entrepreneurs needed in the economy?"— Presentation transcript:

1 Circular Flow of a Market Economy Have Notebooks out Warm up: Why are entrepreneurs needed in the economy?

2 Chapter 2SectionMain Menu What does an economy look like?

3 Chapter 2SectionMain Menu monetary flow physical flow monetary flow physical flow Circular Flow Diagram of a Market Economy Households Firms Circular Flow of a Market Economy In a free market economy, households and business firms use markets to exchange money and products. –Households own the Factors of Production (land, labor and capital) and consume goods and services – Firms produce goods by taking inputs (FOP) and turning them into outputs (finished products)

4 Chapter 2SectionMain Menu monetary flow physical flow monetary flow physical flow Circular Flow Diagram of a Market Economy Households Firms Product market Factor (Resource) market Households pay firms for goods and services. Firms supply households with goods and services. Households supply firms with land, labor, and capital. Firms pay households for land, labor, and capital. Circular Flow of a Market Economy Factor Market = the exchange of Factors of Production (FOP) for money Product Market = the exchange of finished products (G/S) for money

5 Chapter 2SectionMain Menu monetary flow physical flow monetary flow physical flow Circular Flow Diagram of a Market Economy Households Firms Product market Households pay firms for goods and services. Firms supply households with goods and services. Circular Flow of a Market Economy Product Market –Firms Supply the goods and services that they produce to the households Physical Exchange –Households Pay the firms for goods and services that they need Monetary Exchange

6 Chapter 2SectionMain Menu monetary flow physical flow monetary flow physical flow Circular Flow Diagram of a Market Economy Households Firms Factor (Resource) Market Households supply firms with land, labor, and capital. Firms pay households for land, labor, and capital. Circular Flow of a Market Economy Factor (Resource) Market –Households Supply the labor (workers) to firms as well as land (resources) and capital (investors) Physical exchange –Firms Pay households for labor (salaries) and land as well as paying back investors (profits) Monetary exchange

7 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>>

8 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) A. Taco Bell just hired you to assemble tacos ________ _____ B. You receive your first paycheck ($68.24) ________ _____ C. You order two tickets online for a concert ________ _____ D. Your tickets arrive by mail ________ _____ E. In which market are households buyers? ________ _____ F. In which market are households sellers? ________ _____ G. In which market are businesses buyers? ________ _____ H. In which market are businesses sellers? ________ _____ MARKET FLOW

9 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>> Taco Bell just hired you to assemble tacos Market: Flow: Resource (FOP) Household provides FOP (Labor)

10 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>> Taco Bell gives you first paycheck ($68.24) Market: Flow: Resource (FOP) Business Pay for FOP (Resources)

11 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>> You buy two tickets online for a concert Market: Flow: Product Household pays for G/S

12 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>> Your concert tickets arrive online Market: Flow: Product Business Provide for G/S

13 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>> In which market are households buyers? Product

14 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>> In which market are households sellers? Resource (FOP)

15 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>> In which market are businesses buyers? Resource

16 Chapter 2SectionMain Menu Circular Flow Model Review (Worksheet) Households Pay for G/S (Products) >>>>>> <<<<<>>>>> In which market are businesses sellers? Product

17 Chapter 2SectionMain Menu


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