Question

Describe the circular flow of the Economy. Also describe in detail how each of the resources is used in the productive process. What do the owners of the resources receive in payment?  

Answer 1

Circular Flow of Economic activity:-

• Flow of goods, services and resources.
• Describe where money goes and
• What it is exchanged for in market Economy.
• Shows relationship between households, firms and the government.
• Goods and services flow through the Economy in one direction.
• Money flows in the opposite direction.

• People buy goods and services to satisfy needs.
• They sell their labour, land and capital in exchange for income.
• Buy goods and services that firms produce.
• Business sell goods and services to households.
• Earn revenues and generate profits.
• Businesses pay wages to households in return for the use of their production.

Government levy taxes on households and business to provide benefits.

Owners of the resources receive consumer's Expenditure as income.