Everytime you buy a good, do you know that you are contributing to the economy? The purchases that people made are basically just a part of a bigger piece of the economic puzzle. The economy works in a circular motion known as the motion known as the circular flow diagram in economics. In this post, we have collected a handy of the diagrams for you to print. The first diagram can be seen in the following image.
In economics, a circular flow model is a diagram that is used to represent the monetary transactions in an economy. There are two flows present within the model including flows of physical things and flows of money. The circular flow diagram is a basic model to show how an economy functions. Primarily, it looks at the way money, goods, and services move throughout the economy. In the diagram, there are two main characters, known as firms and households, where households represent consumers and firms represent producers. You can see the details of the circular in the following diagrams.
The circular-flow diagram (or circular-flow model) is a graphical representation of the flows of goods and money between two distinct parts of the economy: market for goods and services, where households purchase goods and services from firms in exchange for money; market for factors of production (such as labour or capital), where firms purchase factors of production from households in exchange for money. The market for goods and services is the place where households spend their money buying goods and services produced by firms. In other words, is the place where firms sell the goods and services they have produced, receiving a revenue paid by households. Meanwhile, The market for factors of production is the place where households offer their labour, capital and other factors such as land, receiving an income for their use. Firms use these factors in their production.
Hopefully these diagrams will help you much in understanding the circle of economy. All the diagrams above are free to be saved and printed. Just click on the image to save them.