Sunday, February 1, 2015

Unit 2 - Market Economy

Businesses and households, what is their relationship?

The circular flow diagram displays the relationship of resources and money between the firms, households and government branch through the two markets (factor and products).


 Above are two markets, firms (businesses) and households (we are the households). 
From the household, you will sell your outputs (i.e. labor) to the factor market, where the firms will buy your resources and you will receive the income in exchange for your labor (follow the green arrow).
The firms will use your resources to produce and sell the products to the goods market, where you as the household will buy the final goods and the money that you spent will be the firms' revenue, where they will use part of it to pay for your labor. 
In the middle of the diagram should be the government. The government plays both consumers and producers role in both market. They buy the resources from the factor market and the products from the goods market. They enforce the policies, laws and provide services to both firms and households from the taxes they've collected.

Watch the video for further explanation (:
 
 More info, click here!

1 comment:

  1. I really like that you separated different aspect of GDP into different sections. This made it easier for me to digest the info. I also like how the video you chose goes into detail so the average person can have a working knowledge of this topic.

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