Topic > Essay on the circular flow model - 895

40). A business is any business, such as a sole proprietorship, partnership, or corporation. Therefore, commercial enterprises provide the product that households want or need. The money flowing from households to businesses represents household consumption spending and business revenue. The product was generated by trade flows from the business enterprise to households in the form of sales by the business enterprise and purchased by the household for consumption. Businesses give money to families in exchange for economic resources used as factors of production. For example, when people work for a business, they provide their labor as a factor of production. In exchange for their work, families receive wages and salaries from businesses. In resource markets, households are usually the suppliers and firms are usually the demanders. The money that flows from businesses to households is expenditure from the perspective of businesses and income from the perspective of families. Labor, capital and natural resources that flow from households to businesses are sources of income from the perspective of households and inputs from the perspective of businesses. Inputs are also called factors of production because they are used by businesses to produce goods and services.