Circular Flow Basics

Resource (Factor) markets:
 productive resources ( 4 factors of production) are
being bought and sold
 Producers invest in capital (money) in the
resource market to increase production and find
the labor needed to run their businesses.

Product Market:
 Producers sell their goods and services to
consumers
 After individuals receive income, they spend it in
product markets.

Only final goods and services are sold here.

Final/Finished goods: This is the last time a
good or service will be consumed or used
3 Economic
Actors
Households
Businesses
Government


1. Supply productive resources (labor) to
businesses
2. Buy final goods and services
1. Supply goods and
services in the product
market
2. Function as consumer
and producer
3. Try to sell products for
more than cost of
production (make a
profit)
1.
Tax consumers and businesses
2.
Inject spending into the economy
3.
Regulate when necessary