Question

Use a Circular Flow Model to re-create or develop a CFM chart that includes products and market factors from a personal or work experience.

Answer 1

The circular flow model is the simplistic graphical representation of how the money flows across the product market and factor market. It is the household that is the supplier in the factor market and supply land, labor, capital and entrepreneurship. It is the household that is the buyer in the product market that make purchases of various goods & services.

The firm is the seller in the product market and the buyer in the factor market. As a buyer in the factor market, the firm purchases land, labor, capital & entrepreneurship and makes payment in the form of rent for land, salaries & wages for labor, interest payment for capital and profit for entrepreneurship.

The circular flow model is given as follows:

Finsihed Product Product Market Finished Product (Goods & Services Market) Money (S) Money (S) Firm Household Land Labor Capital Entrepreneurship Money (S) Land Labor Capital Entrepreneurship Money ($) Factor Market -Land -Labour -Capital Entreprenurship