Economics/Business/Free Enterprise EOCT
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would pay “Wages” to its employees to harvest the “Resource.” If it doesn’t own its ownfarm, it might pay money (“Net Profit”) to some independent farmer in order to purchasecorn, its “Resource.”Once the business has its kernels of corn, it’s time to package them and prepare them forsale in the grocery store. These bags of popcorn are the “Goods” that travel to the“Product Market.” Of course, the popcorn company doesn’t give its popcorn away; thegrocery store must pay the popcorn maker money, which is shown as the “Revenue”arrow.Although this example used popcorn, any number of goods and services can besubstituted. Also, if you imagine this diagram as a wheel, look at the outer arrows andrealize that the wheel only turns because of the presence of money. The presence of money makes the circular diagram “flow,” so to speak. With it, everyone can get paid forlabor and pay for items using the same medium of exchange (money). The flow of goodsand resources might still occur without money, but at each point, people would have toagree on what constitutes a fair payment or exchange of goods and services.
The laws of supply and demand
Continuing the example that began on page 14, Ms. Kronhorst has decided to research thefurniture company that wants to lease her warehouse. The Second Time Sofa Companyspecializes in making sofas and chairs from recycled plastic bottles. Currently, it is theonly company in the United States that makes plastic sofas. The graph on the followingpage shows the quantity of sofas Second Time is willing and able to offer at differentprices. The graph shows the firm’s
, the quantity of goods or services thatsomeone is able and willing to supply at different prices.
STRATEGY BOX — Go With the Flow
Study the circular diagram carefully and be sure you understand each aspect ofit. The diagram provides a simple and easy way to show how households andbusinesses interact, as well as how the product market and resource market areconnected.