5- CHapter 3+4

5- CHapter 3+4 - Circular Flow of Economic Activity Firms...

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Circular Flow of Economic Activity Firms and Households Interact in Two Markets o Output markets Goods we go out and get- goods and services Firms supply and households demand o Input markets Factors of production- Labor, land, capital, entrepreneurs Households supply and firms demand Circular design- Firm to Output markets to households to input markets back to firms o Can also go backwards Input markets provide income to households you then spend money in output markets through spending and investing which gives the firms revenue, which allows them to put money into their input markets. Demand Quantity demanded vs. demand o Whole curve on the graph will be called the demand. Clarify when it is from and whom it is for. Demand is always changing so we must be careful. o The point in which you decide how much you will produce and at what price is called the quantity demand Law of demand o Negative relationship between quantity demanded and price (as price goes down demand goes up) The Exception is Giffen Goods- When people in Ireland depended on potatoes for cheap food. So when the price of potatoes went up during the potato famine people still continued to buy them despite the price. This is
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This note was uploaded on 01/12/2012 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at Wisconsin.

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5- CHapter 3+4 - Circular Flow of Economic Activity Firms...

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