Like many sciences, the business utilizes particular terminology to assure that concepts are fully understood. I want to expose you to the ideas of the circular flow diagram in this pap. The circular flow diagram in economics shows the structuring of an economy in a simple economic system. This graphic includes people, companies, manufacturing factors, marketplaces and products and services marketplaces.
The model of a circular flow shows how money transfers into society. According to Daraban (2010), “the circular flow of income diagram is a simplified representation of the functioning of a free-market economic system” (p. 274). Money goes from manufacturers to wage employees and is returned to producers as product payments. Briefly, an economy is a never-ending circular cash flow. This is the model’s fundamental structure, although the actual cash flows are complex. In addition to depicting complicated economic systems, economists have added variables. The elements of a nation’s gross domestic product (GDP) or national income are these elements. This is why the concept is also known as the circular income flow model.
Follow the dollar note for a tour of the circular flow as it takes the route from person to person in the business. Consider the dollar starting with a home in your pocket. When you buy a drink, bring the dollar for products and services to one of the economies, including your nearby coffee store at Starbucks. You buy your favorite beverage there. When the money enters the Starbucks cashier, the company receives income.
The dollar, though, does not remain long at Starbucks since the Company utilizes it to acquire market input for manufacturing components. For example, the dollar may be used by Starbucks to rent his property owner or pay his workers’ salaries for the area he is occupying. In any event, some households receive the dollar and are back in somebody’s wallpaper once again. The history of the cyclic movement of the economy begins at this moment once more.
Reference
Daraban, B. (2010). Introducing the circular flow diagram to business students. Journal of Education for Business, 85(5), 274-279.