Three Sectors, Three Markets The three mIcroeconomic sectors included in this model are: Household Sector: This

includes everyone, all people, seeking to satisfy unlimited wants and needs. This sector is responsible for consumption

expenditures. It also owns all productive resources. Business Sector: This includes the institutions (especially proprietorships, partnerships, and corporations) that undertake the task of combining resources to produce goods and services. This sector does the production. It also buys capital goods with investment expenditures. Government sector: This includes the ruling bodies of the federal, state, and local governments. Regulation is the prime function of the government sector, especially passing laws, collecting taxes, and forcing the other sectors to do what they would not do voluntary. This diagram presents the three-sector, three-market circular flow. At the far left is the household sector, which contains people seeking consumption. At the far right is the business sector that does the production. At the top is the product markets that exchange final goods and services. At the bottom is the resource markets that exchange the services of the scarce resources. Taxes: With the government sector in place, the next step in the construction of the three-sector, three-market circular flow is taxes. Taxes are household sector income that is diverted to the government sector. The household sector is forced to divert part of income away from consumption and saving because the government sector mandates that they must Government Purchases: The primary reason that the government sector collects taxes from the household sector is to pay for government purchases