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Circular Flow of Income

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Sarthak Ahuja
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34 views2 pages

Circular Flow of Income

Uploaded by

Sarthak Ahuja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Activities 1.

Drawing a circular flow of income diagram The following video video

explains the workings of the circular flow diagram. After watching the 5 minute video complete the
activity that follows:

(a) What is the difference between a closed economy and an open economy?

(b) How would the circular flow diagram of a mixed economy differ from the circular flow diagram
present in a planned economy and a free market economy?

Mixed Economy:

- Includes elements of both a market and planned economy

- Involves interactions between households, businesses, and the government

- Households supply labor to businesses and receive income in return

- Businesses produce goods and services and pay wages to households

- Government collects taxes and provides public goods and services

Planned Economy:

- Centralized government control over production and distribution

- Government decides what to produce, how much, and for whom

- Little to no private ownership or market-based exchange

- Households work for state-owned enterprises and receive goods and services from the government

Free Market Economy:

- Minimal government intervention in economic activities

- Households own resources and make decisions about their use

- Businesses compete, set prices, and produce based on consumer demand

- Resources flow from households to businesses in exchange for goods and services

Activity 2:

The product and resource market Start by watching the following short video before answering the
questions which follow. video

(a) Business sell goods and services in the ___________ market.

(b) Businesses purchase goods and services in the ____________ market.


(c) The 4 factors or components in the resources market are ___________________

(d) The four factor rewards are ___________________

(e) Does your school operate in the product market or the resource market?

(f) What is the role of tax in the circular flow diagram?

(g) Explain the role of the financial sector in the circular flow

(h) Explain the role of international trade in the circular flow diagram

Start with two boxes, one you can label firms and the other households. Of course in this case
households refers to any family unit from a single person living on their own to a large extended
family. Draw labels to indicate the flow of goods and services and factor rewards from businesses to
individual households and then arrows indicating factors of production and consumption from the
families to individual firms. On opposite sides of the two boxes draw two additional boxes to
indicate factor and product markets. Lastly, draw arrows to indicate leakages and withdrawals into
and out of the circular flow

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