demonstrate how the new product will work.

A good model to start with in economics is the circular flow diagram (Figure 1.7). It pictures the economy as

consisting of two groups—households and firms—that interact in two markets: the goods and services market

in which firms sell and households buy and the labor market in which households sell labor to business firms

or other employees.

FIGURE 1.7 The Circular Flow Diagram The circular flow diagram shows how households and firms interact in the

goods and services market, and in the labor market. The direction of the arrows shows that in the goods and

services market, households receive goods and services and pay firms for them. In the labor market, households

provide labor and receive payment from firms through wages, salaries, and benefits.

Firms produce and sell goods and services to households in the market for goods and services (or product
{"file_type": ".pdf", "file_name": "Microeconomics3e.pdf", "uploaded_via": "batch_uploader", "title": "Principles of Microeconomics 3e", "total_pages": 597, "upload_timestamp": "2026-02-07T15:24:38.309401", "producer": "Prince 14.2 (www.princexml.com)", "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "creationdate": "2022-12-07T14:15:44-06:00", "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "batch_upload": true, "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "creator": "PDFMiner", "file_size_mb": 26.99, "moddate": "2022-12-07T14:23:05-06:00"}