Simple Market Economy

7:49 AM



According to our professor, the Simple Market Economy model shows the roles of the two primary economic actors or agents, the households and the firms/business. The diagram also depicts the flows of goods and services and money which shows the interdependence of the two economic agents through two types of markets namely the factor market and the product/good market. I remembered I watched a tutorial about the Simple Market Economy Model for my Economics class just to further understand the model. Here’s what I have learned based from my professor and what I’ve watched.
In the Factor Market, households are the ones who own and supplies the factors of production simply because the households sells the land, labor and capital of entrepreneurship, the factors of production or economic resources. These become economic inputs to the businesses. Then now, the businesses incurs costs to the factor market because they have to pay for the resources and so this becomes the income of the households in the form of profit, wage, rent, interest and salary.  
The households are the ones who demands for finished goods and services simply because the households are the ones who buy goods and services from the businesses. Businesses are the ones who sell goods and services through the product market to the households. And so the households consume and pay for those goods and services. Those consumption became revenue to the businesses.   
Well, I think that the diagram is entitled “Simple Market Economy Model because it simply explains how a market economy works. It is like a system of incentives that shows how businesses and households respond to incentives through that factor market and product market. It clearly shows how simple it is for the households and businesses interact with each other through markets for products and resources.

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1 comments

  1. Very Nice article ..... For more Detail about market economy join Prime institute

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