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RESOURCE ALLOCATION: The process of dividing up and distributing available, limited resources to competing, alternative uses that satisfy unlimited wants and needs. Given that world is rampant with scarcity (unlimited wants and needs, but limited resources), every want and need cannot be satisfied with available resources. Choices have to be made. Some wants and needs are satisfied, some are not. These choices, these decisions are the resource allocation process. An efficient resource allocation exists if society has achieved the highest possible level of satisfaction of wants and needs from the available resources AND resources can not be allocated differently to achieve any greater satisfaction.

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Lesson 11: Circular Flow | Unit 1: Basic Flow Page: 5 of 22

Topic: The Payment Flow <=PAGE BACK | PAGE NEXT=>

The payment flow goes in the opposite direction of the physical flow. A physical commodity goes one direction through markets and payment goes the other.
  • The household sector buys production from the business sector (counter-clockwise flow) in exchange for payment (clockwise flow) through product markets.
  • The business sector buys resources from the household sector (counter-clockwise flow) in exchange for payment (clockwise flow) through factor markets.
  • Revenue received by the business sector for selling goods is used to pay the factors of production.
  • Factor payments become income used by household sector to buy production from the business sector.
  • The circular flow makes about six cycles around the economy each year.

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MONEY CHARACTERISTICS

The four primary characteristics of money are: (1) durability, (2) divisibility, (3) transportability, and (4) noncounterfeitability. Although a number of items or assets have served as money, those that best match these four characteristics are the ones that best function as money, the ones that best operate as a medium of exchange.

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Today, you are likely to spend a great deal of time wandering around the downtown area looking to buy either handcrafted decorations to hang on your walls or throw pillows for your bed. Be on the lookout for high interest rates.
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The portion of aggregate output U.S. citizens pay in taxes (30%) is less than the other six leading industrialized nations -- Britain, Canada, France, Germany, Italy, or Japan.
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