John Mark Ventura

BSBA-2L(irregular student)

ACTIVITY 1

THE CIRCULAR FLOW MODEL

Part 1

DIRECTION: Fill in the appropriate answer for the following scenarios based on the circular flow model below.

WHICH MARKET?

Labor, Land and Capital

FACTOR MARKET

Wages, Rent, Profit

HOUSEHOLD FIRMS

Payment for Goods and Services

GOODS AND
SERVICES MARKET

Goods and Services

SCENARIO ANSWER

1. Lea pays a local grocer Php 350.00 for FACTOR MARKET

groceries. Which market does this
occur?

2. KC earns Php 230.00 working for Holcim GOODS AND SERVICE MARKET
Philippines. One of world’s leading suppliers of
cement. Which market does this occur?

3. Evelyn spends Php 60.00 to get her hair FACTOR MARKET

braided and dyed. Which market does this
occur?

4. Julie’s Bakery delivers the products ordered by GOODS AND SERVICES MARKET
customer A.

5. Gardenia pays his employees for the services GOODS AND SERVICES MARKET
or labor rendered.

Part 2

DIRECTION: Complete the statement below based on the circular flow model.

1. The economy has two types of decision makers, HOUSEHOLD and BUSINESS FIRMS.

2. FIRMS produce goods and services using inputs such as land, labor and capital and entrepreneurship.

While HOUSEHOLD owns the factors of production of production and consumes all the goods and

services.

3. In the factor market, household are SELLERS and the firms are BUYERS. While in the goods and services market,
household are BUYERS and the firms are SELLERS.
4. The upper portion of the loop shows the MOVEMENTS OF RESOURCES to be used by the firm in producing goods and
services.

5. In the lower portion of the loop presents the MOVEMENTS OF GOODS AND SERVICES provided by the firm
to the household.

Part 3

DIRECTION: In three to four sentences, in your own opinion and point of view, what is the significance of studying the
circular flow model?

For me, the significance of studying the circular flow model is to understand how money moves within an
economy. It breaks the economy down into two primary players: households and business or firms. It separates the
markets that these participants operate in as markets for goods and services and the markets for the factors of
production. It is also help us on how we can prevent scarcity in the economy.