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  • Essay / Essay on the circular flow model - 895

    40). Business is any business such as a sole proprietorship, partnership or corporation. Commercial enterprises therefore provide the products that households want or need. The money that circulates from households to businesses constitutes household consumption expenditure and income for the business. The product was produced by trade flows from the commercial enterprise to households, in the form of sales by the commercial enterprise and purchased by the household for consumption. Businesses give money to households in exchange for economic resources used as factors of production. For example, when people work for a company, they provide their labor as a factor of production. In exchange for their work, households receive wages and salaries from companies. In economic resource markets, households are generally the suppliers and businesses the demanders. Money that flows from businesses to households is an expense from the business perspective and income from the household perspective. Labor, capital and natural resources that flow from households to firms are sources of income from the household perspective and inputs from the firm perspective. Inputs are also called factors of production because they are used by businesses to produce goods and services..