Fourth Grade Northeast Region
Lesson 3
Title: Circular Flow Model
Grade Level: 4
Unit of Study: Northeast Economics
GLCE:
E1.0.7: Demonstrate the circular flow model by engaging in a market simulation, which included
households and businesses and depicts the interaction among them.
E1.0.2: Describe some characteristics of a market economy.
Abstract: A market simulation can depict the interaction between households and business and
demonstrate the circular flow model. For example, students can sell their labor to businesses in
return for a wage, which they spend for goods and services. Businesses purchase goods and
services from other businesses which employ labors who also spend their wages for goods and
services. Household can provide capital for business by investing in stocks or purchasing bonds.
Key Concepts: How does a market economy work?
Key Vocabulary: Goods, Services, Income, Provider, Market Economy, Wages, Labor
Sequence of Activities:
1. The Marketplace
Talk with your students about the market economy that exists in the United States.
Buying and selling creates the marketplace. People start businesses to earn a profitable
income. They decide whether they would like to provide a good and/or a service to
consumers. People who pay for goods and services are called buyers or consumers.
Buyers and sellers come together in the marketplace.
2. Introduce the circular flow model. Background information is included at the end of this
lesson.
3. The teacher will act as the employing firm. The teacher will give jobs for completion in
the school or classroom such as picking up trash, cleaning, dusting, library helper, office
assistant, etc.
4. Students will be “paid” for their work in the form of a Hershey Kiss. The chocolate can
then be immediately consumed, or saved for a future goods or services. For example, the
student may save the chocolate, and later pay the firm for a particular service, such as
extra recess, or extra work time on a past due assignment. The chocolate could also be
saved to buy certain goods such as pencils, erasers, etc.
5. Expand or modify this lesson as needed.
Calhoun ISD K-8 Collaborative Social Studies Curriculum is licensed under a Creative Commons
Attribution-NonCommercial-ShareAlike 3.0 Unported License.
Fourth Grade Northeast Region
Additional options available at:
http://members.scope.oakland.k12.mi.us/lessondetail.aspx?id=1285&el=55&unit=58
Local Junior Achievement Organization ( www.ja.org )
Economics in Action ( www.producingohio.org/action/circular/index.html )
The Circular Flow of Economic Activity
J. Bradford DeLong
delong@econ.berkeley.edu
http://www.j-bradford-delong.net
The flow of payments in an
economy is a circular flow.
Individuals--people living in
households--work for
businesses, rent their property
(or their capital) to
businesses, and manage and
own the busineses. All these
activities generate incomes-flows of payments from
businesses to households. But
households then spend their
incomes--on consumption
goods, in taxes paid to
governments (that then spend
the money on goods and
services), and on assets like
stock certificates and bank
CDs that flow through the
financial sector and are then
used to buy investment and
other goods. All these are
expenditures
The two flows--of incomes
and of expenditures--are
equal: all expenditures on
products are ultimately
someone's income, and every
piece of total income is also
expended in some way.
Calhoun ISD K-8 Collaborative Social Studies Curriculum is licensed under a Creative Commons
Attribution-NonCommercial-ShareAlike 3.0 Unported License.
Fourth Grade Northeast Region
Calhoun ISD K-8 Collaborative Social Studies Curriculum is licensed under a Creative Commons
Attribution-NonCommercial-ShareAlike 3.0 Unported License.