Slide 1Households

Firms Production Goods Government Foreign

The Circular Flow Diagram

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 Definition
“A visual model of the economy, shows how dollars flow through markets among
households and firms.”
Actors
1 Households :
 own the factors of production, sell/rent them to firms for
income.
 buy and consume goods & services.

Household
And

2 Firms :
 buy/hire factors of production, use them to produce
goods and services.
 sell goods & services.
Firms
Markets
1 Factor of good and services :
“The goods and services market is where households
purchase consumable items and businesses sell their
wares.”

Market Of G/S
2 Factor of Production :
“The factors of production are the resources that the
economy uses to produce goods & services.”
 Land
 Labor
 Capital
 Human Market Of FP
Figure 1 : Circular Flow Diagram

2
Sector
Figure 2 : Circular Flow Diagram

3
Sector
Figure 3 : Circular Flow Diagram

4
Sector
 Thank you

By, By,
Sahil Chovatiya Nishant Chhabhaya