Firms and Businesses

Households/ Consumers

Product Market

Economic Resource

Market

$ (Revenues)

$ (Wages, Salary, Interest,

and Pro�ts)$

$Goods and Services Goods and Services

Land, labor, Capital, and Entrepreneurial ability

Land, labor, Capital, and Entrepreneurial ability

Biosphere

Outputs: Wastes and pollution(to sinks)

Input: Natural Resources and environmental services (Sources)

Solar Energy

Waste Heat

BroaDer Circular Flow MoDelHarris

Why Include the Ecosystem?

Sources and Sinks Explained

Failures with the Traditional Model

Price ($)

Quanity (tons of coal)

CoalSupply (private)

Demand

Equilibrium (private)Price (private)

Quanity (private)

Supply (social)

Equilibrium (social)

Price (social)

Quanity (social)

market Incorporating Externalities in the Supply and Demand Analysis

Economics 12Pennington

Fall 2011

Define *Externalities, limits, etc.