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Unit 1 - Business Basics

Learning Target 8:  I can describe the circular flow model


We now know that the goal of every business is profit and there are items (externalities) that a business cannot control which impacts how they accomplish this goal.  If we were to create a visual that visually explained this, what would it look like?  The good news for you is that you don't have to do this because economists have already created the circular flow model to explain the movement of goods and services through the economy. 

At a very simple level, the circular flow model has two sides to it. The left side of the model is the business side.  Businesses are responsible for producing goods and services and hiring labor.  The right side of the model represents the households.  The households provide labor as well as the other factors of production for the businesses and in return they receive income from the businesses which they use to purchase goods and services of businesses.


Watch the following video to learn more about this model.


Show What You Know: How does the circular flow model incorporate the factors of production?


Make The Connection:  Using a company of your choice, create a circular flow model using current examples and pictures. 


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