Econ 3 - Circular Flow of Economic Activity Shows how firms...

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Circular Flow of Economic Activity Shows how firms and households interact in the input and output markets Output market--goods/services are exchanges Input market-- resources--used to produce products, are exchanged Flow of physical products (labor)--One direction Monetary Flow --Opposite direction Buying something Physical is the good you buy Monetary is the cash you hand over Supply and Demand Model: Basics Competitive Market: many buyers/sellers of the same good/service Key: no individual's actions have a noticeable effect on the price If there ar e a lot of ppl willin got buy and sell, an individual shouldn't be able to affect the price Assumptions: The product that they're buying is functionally similar (doesn't have to be the same) Ease of entry and exit for resources (free to move about) The ability to hire as many ppl as needed to increase output Key Elements Demand/Supply curve Shifts in demand/supply curve Equilibrium price Shifts in demand/supply curve affect equilibrium price Demand is a fxn of the price of the good Price of a related product # of consumers Income of individual Tastes and preferences Expectations (Buy things based on what they expect things to be) Relationship in demand for a product and its price--everything else held constant The Demand Curve
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