Castillo, Camille F. 12/03/12
1.) Describe the role played by the following sector:
a.) Household
-Households own the factors of production, such as Land, Labor, Capital, and Entrepreneurship, which they supply to the market.
b.) Business Firms
-Business firms are utilized in producing goods and services out of the factors of production that the household supply.
c.) Government
-The government has the responsibility in collecting taxes of the two sectors as a source of government income, which is used for social services. The government plays the role of a consumer and supplier of the factors of production to continue the circular flow of products and services in the economy.
d.) External Sector
-External sector refers to the international transactions that all residents of the country conduct with the rest of the world. All sectors in the economy deal and transact business with the other countries.
2.) Explain the interdependence of the following sectors in a circular flow model.
-The first two sectors play an important role in the production of and distribution of goods and services. The two sectors interact with each other through the market, which are classified into two, the market for factors of production and market for finished products. Households own the factors of production which they supply to the market (for factors of production). From there, factors will flow to business firms, which will be utilized in producing goods and services. All the produced goods and services flow to the market for finished products. The government provides subsidy to business firms and assumes the role of a consumer and supplier of the finished product in the market. For the household, the government gives transfer payment in the form of pensions, scholarships, social services and other benefits. The government plays the role of a consumer and supplier of the factors of production to continue the circular flow of products and services in the economy.
The government is also responsible for the interrelationship with the other countries or the external sectors to expand our trading activities. The external sector has a significant contribution to the development of the economy. All sectors in the economy deal and transact business with the other countries. The foreign market is part of our economic activities.
Circular Flow of goods and Services
Market for factors of production
Market for factors of production
External Sector
External Sector
Market for finished products
Market for finished products
Government
Government
Households
Households
Business Firms
Business Firms
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