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Circular Flow Diagram definitions

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  • Circular Flow Diagram
    A visual model showing how money, goods, services, and resources move between households and firms in an economy.
  • Households
    Groups or individuals sharing income and owning resources, providing labor and land to firms in exchange for income.
  • Firms
    Organizations that transform resources into goods and services, selling them to households and paying for inputs.
  • Goods
    Physical items produced by firms and purchased by households in the marketplace.
  • Services
    Intangible products offered by firms, such as tutoring, bought by households.
  • Factors of Production
    Resources like labor and land owned by households and used by firms to create goods and services.
  • Market for Goods and Services
    A marketplace where households purchase and firms sell products and services.
  • Market for Resources
    A marketplace where households provide resources and firms acquire inputs for production.
  • Labor
    Human effort supplied by households and utilized by firms as a productive resource.
  • Land
    Natural resource owned by households and rented or sold to firms for production purposes.
  • Revenue
    Money received by firms from households in exchange for goods and services.
  • Income
    Earnings received by households from firms for providing resources, including wages and rent.
  • Wages
    Payments made by firms to households for labor provided in the production process.
  • Rent
    Compensation paid by firms to households for the use of land as a productive resource.
  • Resources
    Inputs owned by households, such as labor and land, essential for firms to produce goods and services.