Circular Flows of Income Homework Help, Assignment Help, Online Tutor, Tutoring

Submit Assignment

* *

Payment Online Assignment Help

Microeconomics Help

Homework Help

sfsf

Circular Flows of Income

All economic activities begin with the organization of production process.

Four factor inputs, viz., (i) land, (ii) labour, (iii) capital, and (iv) enterprise join hands.

The suppliers of factor inputs are known as households. The organizers of production activities are known as firms.

The households supply their factor services to the firm; firms pay them a price for these services.

Payment received from the firms constitutes the income of the households.

Households make use of this income to purchases different goods and services production by the firms.

Thus, income leads to consumption, and consumption, in turn, induces more production. The process keeps on continuously repeating itself. This is what we call the circular flow of income.

1. Households supply factor services to the firm.

2. Firms make payments for factors services in the form of rent, wages, interest and profits.

3. Households make use of the income received from firms to purchase different goods and services for their own consumption. Thus, consumption expenditure flows from households to firm.

4. In return for this expenditure, households receive different goods and services from the firms.