Circular Flow Diagram
The circular flow diagram divides the
economy into two sectors: one
concerned with producing goods and
services, and the other with consuming
them. Resources are converted into
goods and services by business, and
in this transformed state travel back
to consumers. Money flows in the
opposite direction. These flows involve
two markets in which exchange takes
place: the resource or factor market
in which business buys resources, and
the goods and services market in
which business sells goods. (Some
economists define a "factor of
production" as the service of some resource. If resources are land, labor, and
capital, the factors of production are the services of land, labor, and capital.
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