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Circular Flow Diagram definitions

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  • Circular Flow Diagram
    A visual model showing how money, resources, goods, and services move between households and firms in an economy.
  • Households
    Economic agents who own resources and receive income by selling them, while spending money to purchase goods and services.
  • Firms
    Organizations that transform resources into goods and services, earning revenue by selling these outputs.
  • Goods and Services
    Outputs produced by firms and purchased by households to satisfy wants and needs.
  • Factors of Production
    Resources such as labor and land, owned by households and used by firms to create goods and services.
  • Market for Goods and Services
    Arena where households purchase and firms sell outputs, facilitating the exchange of finished products.
  • Market for Resources
    Setting where households provide resources and firms acquire inputs needed for production.
  • Revenue
    Money received by firms from selling goods and services to households in the product market.
  • Income
    Earnings households receive from selling resources, including wages and rent, in the resource market.
  • Resources
    Inputs like labor and land, owned by households and essential for firms’ production processes.
  • Interdependence
    Mutual reliance between households and firms, as each depends on the other for resources, goods, and money.
  • Money Flow
    Movement of currency in the economy, with households spending and firms paying for resources.
  • Product Market
    Another term for the market where goods and services are exchanged between households and firms.
  • Resource Market
    Another term for the market where factors of production are traded between households and firms.