Illustrate and explain the Circular flow of production process in your own words. State clearly.
Answers
ANsWeR :-
Refer the attachment
HOUSEHOLDS - consist of people who provide firms with goods and services that they can produce (BLUE ARROW) and allow them to use their Land, Labour and Capital. In return the firms pay them wages, rents(eg. land), interests, and other sorts of compensation (GREEN ARROW).
FIRMS - use the Land, Labour and Capital (which they buy from the factor market;BLUE LINE) and produce Goods and Services to be sold further in the product market(RED LINE). In return the firms get REVENUE from the Goods and Services sold (GREEN ARROW) and use it to pay the COSTS incurred(GREEN ARROW).
Answer:
What Are Circular Flow Diagrams?
We all need to buy goods. Sometimes those goods are groceries, while other times those goods are clothing for an important event. Whatever the goods might be, purchasing them forms a crucial piece in a functioning economy.
Simply put, each time we buy a good we are contributing to the economy. In this lesson, we'll look at how those purchases are just part of a bigger piece of the economic puzzle. You see, the economy works in a circular motion known as the circular flow diagram in economics.
The circular flow diagram is a basic model used in economics 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.
