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Circular Flow 2

The document discusses the circular flow model which shows how goods, services and factors of production flow between households, businesses and the government. Households supply factors of production to businesses and receive income, while businesses supply goods and services to households. The government also features in the circular flow model, receiving taxes from households and businesses and providing goods and services.

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Litalam Bokleni
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5 views2 pages

Circular Flow 2

The document discusses the circular flow model which shows how goods, services and factors of production flow between households, businesses and the government. Households supply factors of production to businesses and receive income, while businesses supply goods and services to households. The government also features in the circular flow model, receiving taxes from households and businesses and providing goods and services.

Uploaded by

Litalam Bokleni
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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THE CIRCULAR FLOW

The economic process of production uses the factors of production to produce goods and services,
leading to flows in the circular flow.
Think of it like this, households provide businesses with the factors of production, businesses use these
factors of production, like land, labour, capital and entrepreneurship to produce goods which they
provide to households. – This would be one flow in the circular flow.
Another flow, is that businesses provide wages for labour provided and in return, households spend
money at these businesses.

After that, it can become a little more detailed.


Introducing the government into the circular flow. There can also be 2 aspects to this circular flow:
a) Households provide taxes and labour to the government, meaning people will work for the
government (labour) and pay taxes (income tax and VAT and so on).
b) Businesses provide goods and services to households to use as well as an income for people
from households that work for businesses. Businesses then provide taxes and goods to the
government to use. The government then provide goods and services to households and
businesses to make use of, as well as income for those who work for the government.
Government also provides businesses with payments when they purchase goods/services from
businesses, and they offer services to businesses, like water and electricity.

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