©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 11
The Economic Problem:The Economic Problem:Scarcity, Wants, and ChoicesScarcity, Wants, and Choices
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 22
The Foundation of EconomicsThe Foundation of Economics
• Society has virtually unlimited wants…Society has virtually unlimited wants…
• But resources are limited or scarceBut resources are limited or scarce
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 33
Unlimited WantsUnlimited Wants
• Goods & services provide Goods & services provide utilityutility
• Desire for a particular good can be Desire for a particular good can be satisfied, but not desire for goods in satisfied, but not desire for goods in generalgeneral
• The objective of all economic activity is to The objective of all economic activity is to fulfill wantsfulfill wants
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 44
Resource CategoriesResource Categories
Property ResourcesProperty Resources• LandLand
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 55
Resource CategoriesResource Categories
Property ResourcesProperty Resources• LandLand• CapitalCapital
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 66
Notes....Notes....
INVESTMENTINVESTMENT
FINANCIAL FINANCIAL CAPITALCAPITALREAL REAL CAPITALCAPITAL
Resource CategoriesResource Categories
Property ResourcesProperty Resources• LandLand• CapitalCapital
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 77
Resource CategoriesResource Categories
Property ResourcesProperty Resources• LandLand• CapitalCapital
Human ResourcesHuman Resources• LabourLabour
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 88
Resource CategoriesResource Categories
Property ResourcesProperty Resources• LandLand• CapitalCapital
Human ResourcesHuman Resources• LabourLabour• Entrepreneurial AbilityEntrepreneurial Ability
– takes initiativetakes initiative– makes policy decisionsmakes policy decisions– innovatesinnovates– bears riskbears risk
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 99
PROPERTY RESOURCESPROPERTY RESOURCES
HUMAN RESOURCESHUMAN RESOURCES
LandLand RentRent
WagesWagesLabourLabour
Resource PaymentsResource Payments
EntrepreneurEntrepreneur Profit & LossProfit & Loss
CapitalCapital InterestInterest
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1010
Relative ScarcityRelative Scarcity
• resources (inputs) are scarce or limited in resources (inputs) are scarce or limited in supplysupply
• ultimate constraints on productionultimate constraints on production
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1111
Definition of EconomicsDefinition of Economics
• Social science concerned with Social science concerned with efficient use of scarce resources to efficient use of scarce resources to attain maximum fulfillment of society’s attain maximum fulfillment of society’s unlimited wantsunlimited wants
• Doing the best with what we haveDoing the best with what we have
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1212
Getting the Most from Available Getting the Most from Available ResourcesResources
• Full employment: using available Full employment: using available resourcesresources
• Full production: using resources efficientlyFull production: using resources efficiently– productive efficiencyproductive efficiency
• producing goods & services in the least costly wayproducing goods & services in the least costly way
– allocative efficiencyallocative efficiency• producing goods & services most wanted by producing goods & services most wanted by
societysociety
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1313
Production PossibilitiesProduction Possibilities
Assumptions:Assumptions:• full employment & productive efficiencyfull employment & productive efficiency• fixed resourcesfixed resources• fixed technologyfixed technology• two goodstwo goods
– pizzas symbolize consumer goodspizzas symbolize consumer goods– industrial machines symbolize capital goodsindustrial machines symbolize capital goods
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1414
Production PossibilitiesProduction Possibilities
• What if we could produce onlyWhat if we could produce only– 10,000 machines10,000 machines
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1515
Production PossibilitiesProduction Possibilities
• What if we could produce onlyWhat if we could produce only– 10,000 machines10,000 machines
• oror– 400,000 pizzas400,000 pizzas
• using using ALLALL of our resources of our resources
to get some pizzasto get some pizzaswe have to give up we have to give up some machines!some machines!
to get some pizzasto get some pizzaswe have to give up we have to give up some machines!some machines!
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1616
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1717
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1818
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 1919
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2020
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2121
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2222
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)productionproductionpossibilitiespossibilities
curvecurve
productionproductionpossibilitiespossibilities
curvecurve
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2323
Production PossibilitiesProduction Possibilities
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
AABB
CC
DD
EE
WW
attainableattainable
unattainableunattainableattainable butattainable but
inefficientinefficient
Figure 2-1Figure 2-1
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2424
Production PossibilitiesProduction Possibilities
Law of Increasing Opportunity CostLaw of Increasing Opportunity Cost
• opportunity cost increases with amount opportunity cost increases with amount producedproduced
• as we make more pizzas, the # of as we make more pizzas, the # of machines we have to give up (per pizza) machines we have to give up (per pizza) increasesincreases
illustrated...illustrated...
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2525
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
• opportunity cost of 1opportunity cost of 1stst 100,000 pizzas 100,000 pizzas
= 1,000 machines1,000 machines
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2626
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
• opportunity cost of 2opportunity cost of 2ndnd 100,000 pizzas 100,000 pizzas
= 2,000 machines2,000 machines
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2727
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
• opportunity cost of 3opportunity cost of 3rdrd 100,000 pizzas 100,000 pizzas
= 3,000 machines3,000 machines
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2828
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
• opportunity cost of 4opportunity cost of 4thth 100,000 pizzas 100,000 pizzas
= 4,000 machines4,000 machines
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 2929
Production PossibilitiesProduction Possibilities
Pizza (00,000s)Pizza (00,000s) 00 11 22 33 44
Machines (000s)Machines (000s) 1010 99 77 44 00
Opportunity Cost 1st Pizza Unit = 1 Robot UnitOpportunity Cost 1st Pizza Unit = 1 Robot Unit
Opportunity Cost 2nd Pizza Unit = 2 Robot UnitsOpportunity Cost 2nd Pizza Unit = 2 Robot Units
Opportunity Cost 3rd Pizza Unit = 3 Robot UnitsOpportunity Cost 3rd Pizza Unit = 3 Robot Units
Opportunity Cost 4th Pizza Unit = 4 Robot UnitsOpportunity Cost 4th Pizza Unit = 4 Robot Units
the more pizzas we make,the more pizzas we make, the more each one costs,the more each one costs,
in terms of machines foregonein terms of machines foregone
the more pizzas we make,the more pizzas we make, the more each one costs,the more each one costs,
in terms of machines foregonein terms of machines foregone
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3030
Production PossibilitiesProduction Possibilities
Law of Increasing Opportunity CostLaw of Increasing Opportunity Cost
• as we make more pizzas, the # of as we make more pizzas, the # of machines we have to give up (per pizza) machines we have to give up (per pizza) increasesincreases
• so production possibilities curve gets so production possibilities curve gets steeper and steepersteeper and steeper
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3131
Production PossibilitiesProduction Possibilities
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)AA
BB
CC
DD
EE
Figure 2-1Figure 2-1
11stst pizza unit pizza unit costs 1 costs 1 machine machine unitunit
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3232
Production PossibilitiesProduction Possibilities
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)AA
BB
CC
DD
EE
Figure 2-1Figure 2-1
22ndnd pizza unit pizza unit costs 2 costs 2 machine machine unitsunits
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3333
Production PossibilitiesProduction Possibilities
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)AA
BB
CC
DD
EE
Figure 2-1Figure 2-1
33rdrd pizza unit pizza unit costs 3 costs 3 machine machine unitsunits
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3434
Production PossibilitiesProduction Possibilities
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)AA
BB
CC
DD
EE
Figure 2-1Figure 2-1
44thth pizza unit pizza unit costs 4 costs 4 machine machine unitsunits
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3535
Production PossibilitiesProduction Possibilities
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)AA
BB
CC
DD
EE
Figure 2-1Figure 2-1
the more the more pizza we pizza we make, the make, the more more machines machines we give upwe give up
the the steeper steeper the curvethe curve
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3636
Production PossibilitiesProduction Possibilities
Shape of the CurveShape of the Curve
• concave to the originconcave to the origin
Economic RationaleEconomic Rationale
• resources are not completely adaptable to resources are not completely adaptable to alternative usesalternative uses
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3737
Unemployment & Productive InefficiencyUnemployment & Productive Inefficiency
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
AABB
CC
DD
EE
Figure 2-3Figure 2-3
UU
a point like U represents a point like U represents unemployment or unemployment or underemploymentunderemployment
a point like U represents a point like U represents unemployment or unemployment or underemploymentunderemployment
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3838
Unemployment & Productive InefficiencyUnemployment & Productive Inefficiency
Production Possibilities
0
2
4
6
8
10
12
0 1 2 3 4 5
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
AABB
CC
DD
EE
Figure 2-3Figure 2-3
UU
more of either or both more of either or both products is possibleproducts is possible
more of either or both more of either or both products is possibleproducts is possible
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 3939
A Growing EconomyA Growing Economy
• increases in factor suppliesincreases in factor supplies
• advances in technologyadvances in technology
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4040
Production Possibilities
0
2
4
6
8
10
12
14
0 2 4 6 8
Pizzas (hundred thousands)
Mac
hin
es (
tho
usa
nd
s)
Unemployment & Productive InefficiencyUnemployment & Productive Inefficiency
AA''
BB''
CC''
DD''
EE''
Figure 2-4Figure 2-4
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4141
Present Choices & Future PossibilitiesPresent Choices & Future PossibilitiesFigure 2-5Figure 2-5
Goods for the PresentGoods for the Present
Go
od
s fo
r th
e F
utu
reG
oo
ds
for
the
Fu
ture
FAVOURINGFAVOURINGPRESENT GOODSPRESENT GOODS
FutureFutureCurveCurve
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4242
Present Choices & Future PossibilitiesPresent Choices & Future PossibilitiesFigure 2-5Figure 2-5
Goods for the PresentGoods for the Present
Go
od
s fo
r th
e F
utu
reG
oo
ds
for
the
Fu
ture
FAVOURINGFAVOURINGFUTURE GOODSFUTURE GOODS
FutureFutureCurveCurve
Goods for the PresentGoods for the Present
Go
od
s fo
r th
e F
utu
reG
oo
ds
for
the
Fu
ture
FAVOURINGFAVOURINGPRESENT GOODSPRESENT GOODS
FutureFutureCurveCurve
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4343
A Qualification: International TradeA Qualification: International Trade
• an individual nation is limited by the an individual nation is limited by the production possibilities curveproduction possibilities curve
• but NOT when there is international but NOT when there is international specialization and trade!specialization and trade!– possible to consume ABOVE the production possible to consume ABOVE the production
possibilities curvepossibilities curve
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4444
Examples & ApplicationsExamples & Applications
• Unemployment & Productive Unemployment & Productive InefficiencyInefficiency– The Great DepressionThe Great Depression– discriminationdiscrimination
• trade-offs & Opportunity Coststrade-offs & Opportunity Costs– logging or wilderness?logging or wilderness?
• Shifts in Production Possibilities CurvesShifts in Production Possibilities Curves– cell phones, the Internetcell phones, the Internet
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4545
Economic SystemsEconomic Systems
• resource allocation methods differ resource allocation methods differ according to:according to:– resource ownershipresource ownership– co-ordination methodco-ordination method
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4646
The Market SystemThe Market System
• private ownership of capitalprivate ownership of capital
• prices & markets co-ordinate activityprices & markets co-ordinate activity
• independent actions of buyers & sellersindependent actions of buyers & sellers
• pure capitalismpure capitalismlimited role for governmentlimited role for government
• Canadian capitalismCanadian capitalismgovernment plays a substantial rolegovernment plays a substantial role
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4747
The Command SystemThe Command System
• socialism, communismsocialism, communism
• government owns most resourcesgovernment owns most resources
• central planningcentral planning
• North Korea & Cuba last remaining North Korea & Cuba last remaining examplesexamples
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4848
BUSINESSESBUSINESSES
The Circular Flow ModelThe Circular Flow ModelFigure 2-6Figure 2-6
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 4949
HOUSEHOLDSHOUSEHOLDS
The Circular Flow ModelThe Circular Flow ModelFigure 2-6Figure 2-6
BUSINESSESBUSINESSES
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 5050
RESOURCERESOURCEMARKETMARKET
FACTORSFACTORSOF PRODUCTIONOF PRODUCTION
INPUTSINPUTS
The Circular Flow ModelThe Circular Flow ModelFigure 2-6Figure 2-6
BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 5151
RESOURCERESOURCEMARKETMARKET
INPUTSINPUTS
The Circular Flow ModelThe Circular Flow ModelFigure 2-6Figure 2-6
BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS
$ COSTS
$ COSTS
$ INCOMES
$ INCOMES
FACTORSFACTORSOF PRODUCTIONOF PRODUCTION
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 5252
PRODUCTPRODUCTMARKETMARKET
GOODS &GOODS &SERVICESSERVICES
GOODS &GOODS &SERVICESSERVICES
The Circular Flow ModelThe Circular Flow ModelFigure 2-6Figure 2-6
BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS
RESOURCERESOURCEMARKETMARKET
PRODUCTPRODUCTMARKETMARKET
INPUTSINPUTS
$ COSTS
$ COSTS
$ INCOMES
$ INCOMES
FACTORSFACTORSOF PRODUCTIONOF PRODUCTION
©2005 McGraw-Hill Ryerson Ltd.©2005 McGraw-Hill Ryerson Ltd. Chapter 2Chapter 2 5353
GOODS &GOODS &SERVICESSERVICES
GOODS &GOODS &SERVICESSERVICES
$ CONSUM
PTION
$ CONSUM
PTION
$ REVENUE
$ REVENUE
The Circular Flow ModelThe Circular Flow ModelFigure 2-6Figure 2-6
BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS
RESOURCERESOURCEMARKETMARKET
PRODUCTPRODUCTMARKETMARKET
INPUTSINPUTS
$ COSTS
$ COSTS
$ INCOMES
$ INCOMES
FACTORSFACTORSOF PRODUCTIONOF PRODUCTION