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Circular Flow Diagram

The circular flow diagram is a schematic representation of the organization of the economy. It shows the flow of goods, services, and money between households and firms through two markets - the market for goods and services, where households are buyers and firms are sellers, and the market for factors of production, where firms are buyers and households are sellers. Decisions are made by households and firms, who interact in these markets. The outer arrows represent the flow of dollars, while the inner arrows represent the corresponding flow of inputs and outputs.

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aadil saeed
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217 views2 pages

Circular Flow Diagram

The circular flow diagram is a schematic representation of the organization of the economy. It shows the flow of goods, services, and money between households and firms through two markets - the market for goods and services, where households are buyers and firms are sellers, and the market for factors of production, where firms are buyers and households are sellers. Decisions are made by households and firms, who interact in these markets. The outer arrows represent the flow of dollars, while the inner arrows represent the corresponding flow of inputs and outputs.

Uploaded by

aadil saeed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Information Technology Solutions

CIRCULAR FLOW DIAGRAM

NAME
The Circular Flow
This diagram is a schematic
AADIL SAEED MINHAS
representation of organization of
the economy. Decisions are made
REGISTRATION NO: by households and firms.
CIIT/SP-14/BBA-1C/014/ISB Households and firms interact in
the markets for goods and
SUBJECT: services(where households are
MICRO-ECONOMICS
buyers and firms are sellers)and
in the markets for the factors of
production (where firms are
SUBJECT TEACHER:
buyers and households are
NAEEM AHMED sellers). The outer set of arrows
shows the flow of dollars, and
the inner set of arrows shows the
corresponding flow of inputs and
outputs.

After graduation, I will exist in the all Becausehouseholds are spending


these parts of this diagram. their money to earn them.
As Households:Obviously I will be a As a Factor Market: As a part of
part of household to spend toproduct factor market I have to play a vital
market and get the things to meets my role. Get land, labor capital and
needs. entrepreneurship form humans and
As Businesses/firms: As an employee utilize them in the favor of firms to
of my firm I will provide goods and give them inputs for production and
services to product market and in in return get wages, profits($) and
result to get revenue for firm to makes GDP. And then give income to
it profitable. Household to run the house
As Product Market: If I lay in this economy.
part, then I will fetch services from
firms and provide to the households.

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