![]() ![]() Transactions are attributed to factor incomes.įor example, human capital receives a wage in exchange for labor. ![]() Money moves between households and firms in a cyclical process whenever a transaction takes place. This is achieved by paying for the services of the abovementioned factors. Whose primary function is to supply goods and services to households and other firms. The 4 factors of production are land, enterprise, real capital, and human capital and each is supplied by factor owners in exchange for a reward.įor example, land is supplied by landowners, human capital is supplied by labor, and capital is supplied by capital owners.Įntrepreneurs, who absorb enterprise production risks, combine land, human capital, and real capital. Whose primary function is to supply firms with production factors. Understanding the circular flow model Households The circular flow model describes money as it moves through various aspects of society in a cyclical process. In simplistic terms, the circular flow model describes the mutually beneficial exchange of money between the two most vital parts of an economy: households, firms and how money moves between them. Digital Business Models Podcast by FourWeekMBA.Business Strategy Book Bundle By FourWeekMBA.An Entire MBA In Four Weeks By FourWeekMBA.100+ Business Models Book By FourWeekMBA.
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