Production and Consumption

Our market economy is not really that complicated.  Basically, it is a big circle.  Consumers (or households) provide the resources that businesses use to produce goods and services.  Businesses pay for these resources, and consumers spend that money on the goods and services businesses provide.  In other words, people work for businesses to produce the goods or services that are provided to us.  In exchange for that labor, businesses pay their workers a salary.  The workers then spend that money to buy goods and services from businesses.  Round and round it goes!  Economists call this the circular flow of economic activity.

In this topic, you will learn about the circular flow of economic activity and the consumer’s role in the circle, otherwise known as consumer sovereignty.  You will also learn about the various types of businesses in America and how increased productivity and competition affect what is produced.

Essential Questions

• What is the circular flow of economic activity, and how do consumers fit into the flow?
• What are the types of businesses, and what role do entrepreneurs play in our economy?
• How do increased productivity and competition affect what businesses produce?