The Circular Flow of Economic Activity

1
The Circular Flow of Economic Activity
2
Consumers

• Consumers play 3 roles in the economy
• Consumer -- user of goods and services. Free to
  choose. Can spend now for immediate wants or save
  for future consumption.
• Worker -- producer of goods and services. Earner
  of income.
• Citizen -- join with others to make group
  decisions. Influence laws, pay taxes, vote.
  Determine use of public goods and services.

3
Business and Industry

• Provide goods and services in return for profit.
• 4 components
• production
• processing
• distribution
• services

4
Government

• Provides legal framework for economic activity.
  Also is a producer and consumer as well as an
  economic force. Can use its economic power to
  accomplish socially desirable goals.

5
International Trade

• Provides better, different, or cheaper goods and
  services and the resources we need to produce.

6
The Circular Flow

• The circular flow follows two paths through the
  economy -- money and goods and services.
• It shows the interaction between the 4 parts of
  the economy -- consumers, businesses, government,
  and international trade.

7
Flow of Goods and Services

• Individuals provide the factors of production
  (land, labor, capital, management).
• Businesses use the factors to produce goods and
  services.

8
The Money Flow

• Businesses pay for the factors of production.
• Individuals buy the goods and services.

9
(No Transcript)
10

• By adding the government, you get two new
  circles.
• One shows interaction between the government and
  consumers.

11
(No Transcript)
12

• The second shows the interaction between the
  government and businesses.

13
(No Transcript)
14

• Putting those together gives you the two inner
  circles.

15
(No Transcript)
16

• Next we put consumers, businesses and the
  government together.

17
(No Transcript)
18
International Trade

• The last part of the flow chart involves money
  and goods and services flowing into and out of
  the country via imports and exports.
• See page 428 of your textbook.

19
(No Transcript)