1. The Circular Flow Model

2. Free Market System
Businesses
Individual

3. Free Market System Resource Market Businesses Individual
Product Market

4. Goods & services Purchased
Free Market System
Resource Market
Cost $
Income
Resources
Resources
Land
Labor
Capital
Entrepreneur
4 factors of production: Land
Labor
Capital
Entrepreneur
Businesses
Individual
Goods & services sold
Goods & services Purchased
Product Market
Revenue
(Not Profit)
Spending

5. Goods & services Purchased
Free Market System
Resource Market
Demand
Supply
Cost $
Income
Resources
Resources
Land
Labor
Capital
Entrepreneur
4 factors of production:
Land
Labor
Capital
Entrepreneur
Businesses supply in product market & demand in resource market.
Individuals demand in the product market & supply in the resource market.
Businesses
Individual
Goods & services Purchased
Goods & services sold
Spending
Revenue
(Not Profit)
Demand
Supply
Product Market

6. The Circular Flow Model
Supply
Demand
Cost $
Income
Resources
Resources
4 factors of production:
Land
Labor
Capital
Entrepreneur
Businesses supply in product market & demand in resource market.
Individuals demand in the product market & supply in the resource market.
Government demands in the product & resource markets and supplies public goods.
Transfer payment: money paid to individuals by the government through social programs
Goods & services sold
Goods & services Purchased
Revenue
(Not Profit)
Spending
Supply
Demand

7. Give 3 examples of transaction you made this week in the product market.
Give an example of a transaction you or your family made this month in a factor market.
How are businesses connected to the factor and product market?
4. What determines the prices of land, labor, capital and entrepreneurship in a factor market?
5. Where do resource owners get the money to buy goods and services in the product market?
6. Where do business firms get the money to pay resource owners for their land, labor, capital and entrepreneurship in factor markets?
7. Why is it important to know that a market economy is characterized by interdependence?