Thr Circular Flow Model Flashcards
What 4 elements are included in the circular flow model?
Product & factor market
Consumers & firms
How do consumers link to the factor market?
Consumers supply inputs
How do firms link to factor market?
Inputs are demanded by firms from factor markets
How does product market link to firms?
Goods& services are supplied to product market from firms
How does product market link to consumers?
Consumers demand goods & services from product market
When one of the markets fail, who assists the circular flow model?
The government
What is the factor market?
The location where factors of production are exchanged between consumers and firms
What are the 3 factors of production that are bought & sold in the factor market?
Land, labour & capital
What is land?
The natural resources used to produce goods & services
What is labour?
The tasks & jobs performed by workers
What are the 3 types of capital?
- Physical capital (final goods e.g. equipment/tools)
- Human capital (skills/knowledge used by workers to produce goods)
- financial capital (money/assets used to purchase inputs)
What is it called when all 3 factors are assembled?
Entrepreneurship
What is the law of demand?
There’s an inverse relationship between price level and quantity demanded
Price decrease = quantity demand increase
Price increase = quantity demand decrease
What is the law of supply?
There’s a positive relationship between price level and quantity supplied in the market
Price increase = quantity supplied increase
Price decrease = quantity supplied decrease
Are the laws of supply and demand always in effect?
Yes
