The Circular Flow Of Economic Activity

Answer on a sheet of paper… 1) When you spend money, where do you spend it? 2) Think of the sources of income in your household. Where does your household income come from? NOTE: List AT LEAST three things for number one.

Microeconomics The study of how individuals and firms make decisions to allocate scarce resources.

With a partner Look at your lists. What do your answers to number 1 have in common with each other? What do your answers to number 2 have in common with each other? Write these down on one sheet of paper under the headings “#1 in common”, and “#2 in common”.

Market

With your partner… Brainstorm words that you associate with the word “market”. 5 words per group. Write them down.

Market Definition A market is any place where the sellers of a particular good or service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a potential transaction. It does not have to be a physical place…(Internet example)

With your partner Brainstorm a list of things that a business or businesses might spend money on. Be specific! 5 entries per group. Write them down.

So Far... 3 actors in the economy (it is a circular flow!): Producers (Firms) Consumers (Households) Government (taxes) Consumers buy goods and services. Producers buy the factors of production. It doesn’t matter where you start in the process, it works in a circular flow.

On a separate sheet of paper…. Copy the circular flow diagram on the board. By the Way, I am going to erase the arrows!!

How should the arrows be labeled? In other words, which way does Money flow? Which way does Products flow? Discuss with your partner…. The 1st 3 students/groups with correctly labeled graphs get incentive!

Group Quiz Each student/group should enter answers on their own sheet of paper to turn in at the end. 1 answer sheet per group. Remember both names!

1) Which numbers show the flow of goods and services?

2) Which arrows include Mr.Odren’s efforts in composing a lesson? B) 5, 7 C) 4, 2 D) 8, 6

3) Which arrows would include consumers buying video games?

4) Which numbers show the flow of interest, wages, rent, & profits? D) 8, 6

5) What do numbers 1, 3, 6, & 8 have in common? A) They’re goods. B) They’re services. C) They’re FOP. D) They’re money.

Circular Flow 6) What does Circular Flow tell us about the economy?