ECN E101 Lecture Notes - Lecture 5: Comparative Advantage, Macroeconomics, Invisible Hand
Document Summary
The circular flow model represents a basic economy. The economic agents in the model are households and firms. The markets are the factors of production market and the goods/services market. The market for goods and services reflects all of the activity involved in the buying and selling of goods and services. In this market, households spend their wages from labor and their income from land and capital, and firms earn revenue from selling their goods and services. The market for the factors of production reflects all of the activity involving the buying and selling of factors of production. Households supply land, labor, and capital, and firms hire and purchase or rent these inputs. The circular flow model tracks the flow of physical objects (such as labor and goods/services) and money. This diagram demonstrates the interaction of economic agents in the model. You may want to discuss an example using the circular flow diagram.
