Foundations of Economics, 8th Edition

2.3 The Circular Flows

MyEconLab Concept Video

We can organize the data you’ve just studied using the circular flow model—a model of the economy that shows the circular flow of expenditures and incomes that result from decision makers’ choices and the way those choices interact to determine what, how, and for whom goods and services are produced. Figure 2.4 shows the circular flow model.

Circular flow model

A model of the economy that shows the circular flow of expenditures and incomes that result from decision makers’ choices and the way those choices interact to determine what, how, and for whom goods and services are produced.

Figure 2.4

The Circular Flow Model

The orange flows are the services of factors of production that go from ...