Though there are many elements present in the economy, a circular flow diagram between a household and business firms can provide a glimpse of the more significant scenario. The circular flow chart also explains how money flows in the economy. ![]() It shows the relation between a buyer and a seller.Įxample 2: Economics Circular Flow Diagram ![]() The money flows from households to firms through the goods and services markets, and in the same way, a finished product is reaching the household through the market. There are two types of markets, markets for goods and services and markets for factors of production. ![]() Here is an example of a basic model that shows the double-way flow of household incomes to goods and services markets to purchase certain products.
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