Question

What are the four categories of resources used as inputs to produce goods and services? How do these inputs relate to the circular flow model of the economy?

Answer 1

The 4 categories of inputs used to produce goods and services in an economy are:

• Land
• Labor
• Physical capital
• Human capital or entrepreneurship

These 4 types of inputs are used in an economy to produce goods and services.

These inputs relate to the circular flow model as operating in goods and services market and factor markets.

While on one hand, labor provides labor and human capital services in factor markets in exchange for wage income

On other hand, businesses use land and physical capital in goods and services market which are used by labor to produce final goods and services. These land and physical capital like machines are purchased by the businesses to aid the production process.