Production and Consumption

In this topic you learned that the circular flow of economic activity is just a big circle. Products and money flow from businesses to households. Resources and money flow from households to businesses. Consumers decide what is produced by their purchases.

You also learned about the types of business organizations and the advantages and disadvantages of each. Entrepreneurs are important to our economy because they turn ideas into marketable products—innovation.

Businesses want highly productive workers in order to raise their profits. To achieve this goal, they invest in human capital, technology, and capital goods. All of these investments result in higher standards of living.

Competition also affects productivity and what gets produced. The biggest advantages to competition are that resources are put to their best use and prices are lower because goods are produced at the lowest possible cost.