The circular flow model describes the flow of resources, products and incomes among economic actors.
For simplicity, consider an economy with only two actors; households and firms.
They interact in a circular pattern as in the diagram below:
The households- Supply resources (land, labour, capital and entrepreneurial skills) to the resource markets and receive earnings for those resources.
- Demand goods and services from the product markets. make payments for those goods and services using the incomes they receive.
The firms- Demand resources from the resource markets for production of goods and services.
- supply goods and services to the product markets.
Products and resources flow in a counter clockwise direction while payments for these items flow in the opposite direction.
Kavungya answered the question on
August 10, 2021 at 06:20