The Circular Flow of Economic Activity

A Web Quest for Economics designed by Doug James

TEKS - Economics - 6A, 6B, 8B, 17A, 17B, 23A, 23B, 23F, 24C, 26D

To the economist, a market is a location or other mechanism that allows buyers and sellers to deal readily in a certain economic product. Markets may be local, regional, national or global. All markets are similar, however, in that their economic activity has a distinct circular flow. The purpose of this activity is to help students understand how the circular flow operates.

Students will need to assemble and review the resources prior to beginning this project. The completion of this assignment will require students to research, explain, and diagram the circular flow of economic activity. By using the resources furnished, students will be able to answer various questions and be able to produce a diagram of the circular flow of economic activity in different forms. This activity is to be presented by power point.

By using the resources provided, students will provide answers to the following questions:

• According to the circular flow of economic activity (a) in what economic activity is government engaged? (b) In what economic activities are households engaged? (c) In what economic activities are businesses engaged? Explain each

• Pick a company and identify two goods that it buys and one that it sells (Example: a car company might buy tires, carpet, and radios for the cars it sells). Be complete.

• Create your diagram of the circular flow of economic activity, including the government sector, on power point slides or on poster board. Be sure to label the flow lines. It may be a circular or square configuration. Include your explanation here.

• Examine your diagram and in one or two paragraphs explain how you fit into one or more parts of the overall process.

http://www.j-bradford-delong.net

http://www.econ.wayne.edu/~kcotter/2010/201CH4/

http://north.matc.edu/walshj/chrono/chrono%201/circulr1.htm

http://www.uri.edu/artsci/ecn/mead/INT1/Eco/Eco_Handout1.html

Clayton, Gary E., Ph.D., Economics: Principles and Practices, Texas Edition, Columbus, Ohio, Glencoe/McGraw - Hill, 1995.

Arnold, Roger A., Economics In Our times, San Francisco, Calif.,West Publishing Co., 1995.

• Explanation and discussion of the questions

• Completeness and accuracy of answers

• Use of technology, the Internet, and the resources.

• Creativity and imagination in creating your diagram

• Format and presentation

In conclusion, the circular flow diagram allows us to see how a change in one thing in the economy - such as taxes - will lead to a change somewhere else in the economy such as the amount households spend on goods and services produced by businesses. The diagram shows us that economic markets, money, resources, businesses, and consumers are all linked. In the diagram, money circulates on the outside to illustrate payment for goods, services, and factors of production, which flow in the opposite direction on the inside.

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