Initial Discussion Instruction:
Explain how the circular flow diagram relates to the current economic situation. Using the
circular flow diagram, explain a way that your family interacts in the factor market and a way
that it interacts in the products market.
Respond to your peers in a minimum of 125 words. Comment on their descriptions of the
circular flow diagram and factors of production. Discuss how circular flow relates to current
Explain how the circular flow diagram relates to the current economic situation.
“The circular flow model is a visual picture of the relationships between the resource market, in
which income is earned, and the product market, in which income is used to purchase goods and
services” (Amacher & Pate, 2013, sec. 2.3). How it relates to the current economic situation is by
the two types of decision makers, households and firms. Households own the resources and firms
produce the goods and services.
Using the circular flow diagram, explain a way that your family interacts in the factor
market and a way that it interacts in the products market.
An example using the circular flow diagram in the products market would be by purchasing the
goods and services offered at the local grocery store. Groceries are goods that are a necessity for
my family to live on so with these purchases they are creating a flow of income for the company.
This flow keeps the company in business as well as providing a way for my family to survive.
The way the circular flow diagram would interact with my family in the resource market is just
the opposite. In the resource market, firms buy households so they can produce resources to sell
to households; this causes an opposite flow of income (Amacher & Pate, 2013, sec. 2.3). This is
such a confusing statement, firms buy to produce products then sell back to whom they bought
them from? An example I can think of is my family aka the household selling our services such
as being paid by an employer to do a job then turn around and use that income to purchase goods
and services from companies.
Our text states that the circular flow model is used to create “a visual picture of the relationships
between the resource market, in which income is earned, and the product market, in which
income is used to purchase goods and services (Amacher & Pate, 2013, sec. 2.3).” The circular
flow diagram, in its most basic form, has firms on the left and households on the right. The inner
arrow shows the goods and services from firms to households. The outer arrow shows the labor,
land, capital, and enterprise from households to firms, indicating firms’ consumption of these
items. The diagram represents the product market and the arrows at the bottom of the diagram
represent the resource market.
This model explains how money and products flow through the economy. In the Product Market
portion of the model, households buy finished products and services from firms that are looking
to sell what they produce, an example of this in my family’s current economic state would be
buying groceries and clothing to take care of my family of five. Also, another example would be
our smartphones and electronics that my children have.
In the Resource Market portion of the model, firms buy services in the form of labor, land, and
enterprise while paying wages, rent, interest, and profit to the households. An example of my
family interaction with a factor of the Resources Market would be the firm employs my husband
and pays him for his labor and then he pays taxes to the state. We also must pay our property
taxes each year to keep our home on our property.
This cycle must continue to flow to keep our economy going; people want to earn money so that
they can take care of their families.
Discussion 2 Instructions:
Analyze how the law of demand applies to a recent purchase that you made. Describe how the
product has changed in price and explain whether the price change is due to supply or demand.
Did the change in price affect your decision to purchase the item?
Respond to your peers in a minimum of 125 words. In your responses, discuss the effects of a
price change and how it might alter your decision to make a purchase, according to the
determinants of supply or demand.
The law of demand states that the quantity demanded of a good or service in a given time period
is negatively related to its price, ceteris paribus. Quantity demanded is the amount of a good or
service consumers are willing and able to buy at a specific price during a certain time period
(Amacher, 2013). My decision on a recent purchase I made was that I was made aware of pizza
Tuesday’s. This is where Godfather’s makes any pizza for $10. I don’t eat at Godfather’s and, I
have never been. Therefore with the advertisement I felt it was worth a try. After loving the pizza
I was about to purchase it on another day but realized it was over $13 on any other day. So now I
don’t do it every Tuesday but I do make note of the day and purchase it on occasion.
I’m going to say in reference to the product changing in price is due to demand. I can’t really see
them running out of pizza but, I do feel this offers them a great advertisement deal for people
who have never purchased their pizza like me, will now purchase their pizza. The pric change
definitely made me look at the product in the first place to try it out. So, yes it affected my
decision in purchasing the item.
Law and Demand "stated that the quantity demanded of a good or service in a given time period
is negatively related to it's price ceteris paribus. In other words if everything else is held
constantly consumers will purchase more of a good or service at a lower price than at a higher
price. As price rises, ceteris paribus, consumes will purchase less of a good or service, because
its opportunity cost in terms of other goods is higher." (Amacher, 2013).
So what has gone up in price too me is anything baby related such as car seats, formula, diapers,
baby beds. When I was having children I could get a 13oz can of mile for $1.89 and now when
I look at the price of that same can of milk it is now 4.89 and it is the same thing with diapers. I
could buy diapers for $5.99 and now those same diapers are $10.99. Strollers and car seat are
now built into one and it cost an arm and leg for those. Same with a bed they use to be $39.99
and now they are running &69.99 and up. I think this is because people are having babies all
over and the demand is so great they are able to increase the prices like they do. It is so
expensive to have a baby but the demand is so high that the consumers and businesses are able to
up the prices because they know that the people will buy it.
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