The circular flow flashcards
What is the circular flow
its a model explaining how money, goods, services, and factors of production move within an economy
what is a closed economy
it refers to an economy that doesn’t trade or interact with any other economies. No imports or exports and they are rare
What does the closed economy consist of
Households, businesses, government, and financial institutions( banks )
What is a household
consumers who spend and provide labour
what is a business
firms that produce goods and services using labour from households
what is a government
collects taxes, enforces law, and provides public services
what is a finicial institution
manages savings and provides loans to businesses and households
Explain and tell me what are the markets in the circular flow
product market: where businesses sell all goods and services to consumers and the government
Factor market: Where business aquire factors of production
What are the flows in the economy
flow of goods and services: households provide labour, buisness produce goods and services and government supplies public goods
Flow of money: households earn wage, businesses earn revenue, and the government collects taxes and funds.
What are the 4 factors of production and explain each one with its own compensation.
Capital: money required to start up a business for income generation - interest
Natural resources: unprocessed resources from nature ( raw materials ) - rent
Labour: human resources who sell their labour in exchange for wages\salaries - wages\salaries
Entrepeneurship : someone who sees a gap in the market and tries to meet those needs - profit
