“Unit 1.

4 The Circular Flow Diagram (Activity)”

What is Circular Flow of Income?

Economists create models to illustrate economic activity. The circular flow means the unending flows of
production of goods and services, income and expenditure in an economy. It shows the redistribution of
income in a circular manner between the production unit (firms) and households. This activity will help
you analyze these relationships using the PowerPoint (week-1) that accompanies it.

Who’s in the flow?

Use the information from your PowerPoint (week-1) to answer the following questions. For each of the
scenarios, you should identify:

a. the role of the person: buyer OR seller; the market: resource OR product

b. the sector: household OR firm

c. the sector receiving the money payment: household OR firm

1. Turabi Sports sells a soccer ball to Warsi. What can you tell about the transaction?

a. Warsi was the ____Buyer______of the soccer ball in the ___Product____market.

b. Warsi is part of the Household sector.

c. The money used in this transaction was paid to the Firm sector.

2. Warsi has a large rural property where he grows Apple trees and sells them to "Poonam"
Company. What can you tell about the transaction?

a. Warsi was the____Seller____ of the land and trees in the __Resources_market.

b. Warsi is part of the Household sector.

c. The money payment in this transaction went to the Household sector.

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What’s in the flow?

Use the information from your PowerPoint (week-1) to answer the following questions. For each of the
scenarios, you should identify:

a. the market: resource OR product

b. the factor of production: land, labor, capital, OR entrepreneurship

c. the product: good OR service

1. Rouhaan has his own business selling shawarma at a stand in a Mall. For his shawarma stand,
he grows tomatoes in a small garden plot.

a. Rouhaan rents his garden plot in the _ Resource _ market.

b. The garden plot is a _ Land _ resource.

c. A shawarma Rouhaan sells at his stand is a Good _.

2. AZW Productions Inc. just announced a big hit show will play at the Grand Theater in July.
Raja works at the shawarma stand inside the theater and says he can help you buy tickets to the
show.

a. AZW Productions Inc. will sell tickets to you in the _ Product market.

b. Raja is an example of a Labor resource.

c. AZW Productions Inc. is selling you a Service .

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