Circular Flow Chart

 Circular Flow Chart
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The Circular flow describes how a market economy works. A market economy is one in which individuals influence directly what is produced, marketed, and consumed.
Individuals do this by spending money on what they want. This then directs producers to produce goods and services that individuals will consume. The amount of goods and services that are made available is
related to the laws of supply and demand.
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Firms
• Produce and sell goods and services
• Hire and use factors of production
Households
• Buy and consume goods and services
• Own and sell factors of production
Markets for Goods and Services
• Firms sell
• Households buy
Markets for Factors of Production
• Households sell
• Firms buy
Factors of Production
• Inputs used to produce goods and services
• Land, labor, and capital
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The circular­flow diagram is a visual model of the economy that shows how dollars flow through markets among households and firms.
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http://www.reffonomics.com/TRB/Chapter3/circularflow7.swf
Additional information can be found at the above website 11