Question

Worksheet: Circular Flow Diagram Note: this is not in your text book. Research the "Circular Flow Diagram". There are a number of versions our there, but we will focus initially on what is often referred to as the Simple Circular Flow Diagram. Draw it here F/P Firme! House Holds • What does this model represent? What is it intended to show us? • There should be only two economic actors in your CFD. • What are these 2? Firmy and House hows . Each of these is what we call a "maximizing agent", which means that each of them strives to maximize something. What is it that each maximizes? The system aims to accomplish a specific end, namely efficient allocation of resources. What does this mean? How does this system accomplish its goal? How does the satisfaction of needs & wants fit into this economic system and its goal? • What are the other components of the diagram beside the two actors?

Answer 1

(1) " circular Flow Diagram " Flow of goods and Services Faltor payments (wages) Households firms Revenuel Flow of factors of Bod" :- labor, Land etc. (2) This model represent relationship between House- holds and forms, It is intended to show the exchange of Various productive actrities between Households and finns. (2) Army (3) Two Economie actors :- (1) Households "Maximizing agents Floms maximizes "Profit" Househulds maximizes "utility". (4) Efficlent allocation of resances mears, producing goods and senices by using the overlable resances efficiently. Households Supply its resouses by pandry laber and capital to Arms. In exchange for mide fecetor payments to houschalds. This proces svake etterent allocation of resources (5) The other components of the diagram beside the two ochors are ci Government and (ii) Rest of World Crows