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Circular flow, Production Possibilities, and other Concepts

Your supervisor has been asked many questions about how the economy works and why the idea of limited resources is such a major concern in today's economy. Specifically, your supervisor has asked you to do the following:

Create an 3-6 page report, that includes an explanation and/or examples of:

A circular flow diagram that includes the government sector. For this part of your paper, you should include a description of the roles that each participant plays in the economy and how the different sectors interact in the markets.

An illustration of the Production Possibilities model, including a summary of what the model is illustrating and the economic implications for the economy.

An explanation of why or why not trade with other countries is beneficial to an economy and how international trade fits into the circular flow diagram.

An explanation of the difference between micro and macro economics, indicating why the division is necessary.
Then I have to turn this into a presentation (power point) as a training thing for pretend employees.

Solution Preview

Discuss the circular flow in this manner:

Since, resource are limited, proper planning and allocation is needed.

In plotting the diagram, start with the basic economic unit = the households and business firms. ( See the attached file for the sample illustration).

In the diagram above, two economic entities - the business firms and households - interact to maximize the use of resources. The household usually owns land and provides manpower (labor) to the business firms. The business firms utilize land as input to productive endeavor. In return to the use of these resources, the business firms pay for the use of the land in terms of rent. Since households supplies the needed manpower needs of the business, the business firms in return pays for the wages and salaries.

In the course of their existence, the households have needs such as goods and services ...

Solution Summary

This is a discussion of economic concepts such as the circular flow diagram, production possibilities model, why or why not trade with other countries is beneficial to an economy and how international trade fits into the circular flow diagram.

Differences between microeconomics and macroeconomics were also discussed.

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