Econ: Earn a Living

Earning a Living

We participated in a simulation called Earning a Living. The activity helps us understand the relationship among households and business firms. In the simulation, households sell to business the resources it must have to produce a product. Households use the income they earned from selling resources to buy from business the goods and services their households requires. These goods and services are called ECONOS. You can satisfy all your household needs and desires by purchasing ECONOS, which are the products produced by business. Business firms supply to households the goods and services they desire, and to earn a profit in the process.

The activity helps us understand the relationship among consumers and producers. The economic relationship between households and businesses in often said to create a circular flow of economic activity. In a market economy, households are the owners of of resources and supply land, labor, and capital to businesses in exchange for income in the form of wages, rents, interest, and profits. Households then use their income to purchase finished goods and services supplied by businesses. Businesses then use the money from sales to pay resource owners for the services businesses receive by employing the resources. This relationship forms an interdependent economic system. The circular flow helps to explain and prove the assumption that voluntary trade creates wealth. It also shows how trade is influenced by the economic system in which people participate.

Circular Flow Earnig a Living



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