00:01
This question is asking us, what is a circular flow diagram and what does it demonstrate? so the beauty of this question is that a circular flow diagram can be represented in a variety of different ways, but ultimately it has to represent the following four things.
00:21
The product market, the resource market, and let me make sure i get these last two right.
00:33
Households, i'm going to just put house and firms.
00:38
Now, you can add other things onto this curve, but essentially the circular flow diagram is just showing the ways that households interact with each of the following market players.
00:55
So households interact with the product market in a given way, the product market interacts with households, households interact with the resource market and the resource market interacts back.
01:07
The resource market interacts with firms, when firms by their supplies and firms interact with the resource market and giving the resource market and just make sure that we are in this right and firms interact with the product market by selling their products and the product market provides cash to the firm so the circular flow diagram basically shows how the factors of the economy are related let me include a couple more things so essentially it's just important to understand that each factor affects the other factor...