Circular Flow Diagram
Shalexia Rowe
Circular Flow Diagram
The circular flow diagram represents the flow of money through the economy. It involves interactions between households, businesses, product market, and resource market. Households offer resources to the resource market while receiving income from it. The resource market. The resource market gives businesses its resources while businesses gives it cost. Businesses offer goods and services to the product market while receiving revenue from it. The product market gives households goods and services while receiving expenditures. Then the cycle starts over.
Functions of money
Functions of money
Money can be used for buying and selling goods and services. If there were no money, goods would have to be exchanged through the process of barter (goods would be traded for other goods in transactions arranged on the basis of mutual need). Such arrangements are often difficult. But Money eliminates the need of the double coincidence of wants. Money is the common standard for measuring relative worth of goods and service. moneys value can be retained over time it is a convenient way to store wealth.
voluntary exchange
The act of buyers and sellers freely and willingly engaging in market transactions.
Barter
the action or system of exchanging goods or services without using money.
Market
A market economy is where decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.