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Interdependence of Consumers and Producers

Created by

Kristy Flikweert
Kristy Flikweert
Australia

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Interdependence of Consumers and Producers

by Kristy Flikweert
1

a . The simple , circular flow model contains two sectors , namely the ( consumers ) sector and the ( producers ) sector .

2

b . In the two - sector circular flow of income model , consumers make decisions about how to spend their limited income to meet their needs and wants . must decide what goods and services to produce , how to produce them and how much they will cost to produce , so that they can maximise profit .

3

c . The outer ( blue ) flow represents the real flow of between the and sectors . The inner ( red ) flow represents the real flow of between the household and business sectors .

4

d . The household sector , comprising all in the economy , supplied the sector with scarce resources of factors of production , including , , and .

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e . The income payments flow from the business sector to the sector , which has supplied producers with one or more types of resources . These income payments take the form of for land , for labour , for capital and for enterprise .

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f . The outer flow is the real flow of . Households provide economic resources to businesses in the form of factors of production : land , labour , capital and enterprise . Businesses provide and to households . This is known as output or production .

7

g . Households pay for goods and services by businesses . This is known as consumption . Businesses pay households for resources . This is known as income . is paid for the economic resources that consumers provide to businesses . This is known as the inner flow of money or real money flow .

 
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