Circular Flow and Market Dynamics

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Circular flow diagram

Back

A model that shows the flow of goods, services, and resources between households and businesses in an economy.

Front

Households (Resource market)

Back

Households provide resources like labor, land, and capital to businesses in exchange for income.

Front

Households (Product market)

Back

Households purchase goods and services produced by businesses.

Front

Businesses (Resource market)

Back

Businesses acquire resources from households to produce goods and services.

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Businesses (Product market)

Back

Businesses sell goods and services to households.

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Expenditures

Back

The total amount spent by households and businesses on goods and services.

Front

Revenue

Back

The income generated from the sale of goods and services.

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Demand

Back

The quantity of a good or service that consumers are willing and able to purchase at various prices.

Front

Supply

Back

The quantity of a good or service that producers are willing and able to offer for sale at various prices.

Front

Equilibrium price

Back

The price at which the quantity demanded equals the quantity supplied.