1. Which would be a likely cause of an increase
in the price of pizza?
A) a decreased interest in take-out and
fast-food dining
B) a decrease in the price of hamburgers, a
substitute food
C) an increase in the price of cheese, a
complement
D) a health report showing eating pizza
reduces stress
2. Which of the following best describes the
relationship between price and quantity
demanded shown by the demand curve?
A) as the product's price falls, consumers
buy less of the good.
B) there is a direct relationship between
price and quantity demanded.
C) as a product's price rises, consumers
buy less of other goods.
D) there is an inverse relationship between
price and quantity demanded.
3. An improvement in the technology used in the
production of automobiles will most likely
cause the price and quantity of automobiles to
change in which of the following ways?
Price
Quantity
A) Increase
Increase
B) Increase
Decrease
C) Decrease Decrease
D) Decrease
Increase
4. An increase in the popularity of Good X will most
likely cause the equilibrium price and quantity
of Good X to change in which of the following
ways?
Price
Quantity
A) Increase
Increase
B) Increase
Decrease
C) Decrease Increase
D) Decrease
Decrease
5. A drought will most likely cause the equilibrium
price and quantity of oranges to change in
which of the following ways?
Price
Quantity
A) Increase
Increase
B) Increase
Decrease
C) Uncertain
Increase
D) Decrease
Decrease
The Circular Flow of
Economics
6.1
6.1 IDENTIFY THE PARTS OF THE
CIRCULAR FLOW OF ECONOMICS
ACTIVITY
what do you think?
In a capitalist economy, what is the goal?
What do businesses want?
What do all individuals want?
Why do you care about your salary or wages?
Households
Firms
THE CIRCULAR FLOW SIMULATION
First, a few simple questions.
1. Who are the 2 players in our nation’s
economy based on the circular flow model?
2. What is it that firms want from households?
3. What is it that households want from firms?
Now you will be divided!
• Half of you are
HOUSEHOLDS
• Half of you are FIRMS
– You are Entrepreneurs!
– You are consumers!
• Your goal:
– Buy as many products
as possible
– ECONOS are products
– But to buy ECONOS
you’ll need to sell your
land, labor, and capital!
• Your goal:
– Make a profit selling ECONOS
– But to make 1 ECONO you
need the other 3 factors of
production!
• Land, labor, capital
Now, let’s distribute the wealth!
• Entrepreneurs you will start
with money.
• Households you own all the
factors of production
– Land, labor, capital
• Unfortunately, some of you
will have less than others!
• ENTREPRENEURS count
your money and record how
much you start with!
• Your goal is to make a profit
THE RESOURCE MARKET
FIRMS
• You are a buyer in the
resource market.
• 1 Econo = 1 land, 1 labor, 1
capital.
• Get these 3 factors of
production as cheaply as
you can!
• Your goal is to make as
many ECONOS as you can
with your money.
HOUSEHOLDS
• You are selling your labor, land,
and capital in the resource
market.
• Of course, you want a lot of
income, so sell your factors at
the highest rate you can!
• Your goal is to get as much
money as you can for your
factors.
FIRMS report to the factory
• 1 Econo = 1 land, 1 labor, and 1 capital
• I will trade these out for you
• Once you’ve received your Econos, return to your
seat.
• DO NOT SELL ANY ECONOS YET!
THE PRODUCT MARKET
FIRMS
HOUSEHOLDS
• YOUR GOAL: MAKE A
PROFIT!
• YOUR GOAL: BUY AS
MANY ECONOS AS
POSSIBLE!
• Sell your ECONOS at
high prices
• Just like the real
world, buy at as low a
price as you can!
Analyzing the Results
1. Firms count your money. Did you make a
profit, lose money, or break even?
2. Households did you have money left over,
unable to buy ECONOS?
What was flowing in the circular flow?
• Resources flowed from households to firms
and were turned into goods and services, then
sold back to the households.
• Money flowed from firms to households as
wages. Then it went from households back to
firms as they bought goods and services. This
money is called revenue.
Think about it
• If households had unused resources, these
represent unemployment. You needed to sell
your labor, but couldn’t find a buyer.
• If firms had unused resources, they represent
inefficiency. You wasted money on them.
• Unsold Econos represent a surplus. If firms ran
out of Econos and households have money left
over, it is a shortage.
What about inequality in the
distribution of income?
• Firms with the most money at the beginning
probably did the best when it came to making a
profit or revenue!
• Households with the most factors of production
probably made a higher income, and therefore
were able to afford more econos!
• Some people are born with an advantage over
others. It’s part of life!
• What would happen if the money given to
firms was doubled in the next round?
• What if it was cut in half?
What about the Government?
Goods and Services
TAXES
SUBSIDIES OR REGULATION
Households
(Want income to
buy products)
ENTITLEMENTS
Government
Land, Labor, Capital
Firms
TAXES
(want Profit)
Let play again