The Flow of Income and Resources

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TheFlow of Income and Resources

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TheFlow of Income and Resources

Theperformance of the economy is determined by the behavior of differentstakeholders who have the power to influence both the demand forgoods and services as well as the supply of the same(Powell, 2011). The households are a primary decision-making unit in the economy(Powell,2011).The households consume goods and services and provide the requiredlabor and other resources to the different participants in theeconomy. They also supply labor to the firms. The other decisionmaker in the economy is the government. The roles of the governmentinclude enforcing the laws, preventing of monopolies and producingpublic goods. Another decision-making unit is the firms.Entrepreneurs who have the motive to raise profits establish thecompanies. Businesses use resources to create products and servicesfor sale.

Accordingto Powell(2011), householdsinteract with corporations at different levels. In the resourcemarket, families supply factors such as labor while the companies paythe wages. The households also provide financial capital to the firmsin exchange for interests. If the households have other resourcessuch as land, the companies can use them and pay the rent. Therefore,the companies acquire the resources while the families acquire theincome.

Inthe product and services market, the households use the money theyearned from the sale of their resources to pay for the goods andservices required. Hence, the firms receive the income while thehouseholds receive the goods and services. Another participant in theeconomy is rest of the world. All economies interact throughinternational trade. International trade is a major source of incomein any economy (Powell,2011).Therefore, the global economic climate substantially determines theperformance of the local economy.


Powell,R. (2011).&nbspAQAAS Economics Student Unit Guide.London: Hodder Education.

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