The Circular

Flow of Income
 The circular flow of income

The interdependence
of goods markets
and factor markets
The interdependence of goods and factor markets

FIRMS
(suppliers of goods and services,
demanders of factor services)

HOUSEHOLDS
(demanders of goods and services,
suppliers of factor services)
The interdependence of goods and factor markets
(3) (2)
Factor £ £ Producer
demand supply

Factor Goods
services
P P
S S
PF 2
P2
PF 1 P1
D2 D2
D1 D1
O QF1 QF2 Q O Q1 Q2 Q

Factor
services Goods
(4)
(1)
Factor
£ £ Consumer
supply
demand
 The circular flow of income

Consumption,
injections, withdrawals
and equilibrium
 The circular flow of income

Firms

Consumption of
Factor domestically
payments produced goods
and services (Cd)

Households
 The circular flow of income

INJECTIONS

Export
expenditure (X)
Investment (I)
Government
Consumption of expenditure (G)

Factor domestically
BANKS, etc GOV. ABROAD
payments produced goods
and services (Cd)
Import
Net expenditure (M)
Net taxes (T)
saving (S)

WITHDRAWALS