Circular Flow Model

This week in class we read and learned about the Circular Flow Model. It provides an overview on how markets work and the idea of supply and demand. Essentially, using a smaller diagram, it shows us the "big picture." If we ignore the government icon in the middle, this is what it looks like.

Say you're trying to produce sandwiches. The house holds provide the factors of production (Resources). The house holds give bread, fixings and workers to make the sandwiches to the businesses. The businesses use these resources to make their product, in this case a sandwich. The product then goes to the house holds. The resources and products go counterclockwise around the model. The money starts with the money and gives it to the households for their labor making the sandwiches. The house holds then use that money to purchase the product; the sandwiches, from the business. The cash flow moves clockwise around the model. 

At first I thought this concept was difficult and challenging to understand, but once we went over it in class and practiced it several times I began to understand it. Once I understood it, I realized that the model is actually pretty logical and easy to follow and understand. We are definitely going to expand on this model as class go on. I think it serves as a basis in order to understand other aspects of economics. I definitely see why it is so important and imperative that we learn this model if we want to be able to comprehend economics.