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land, labour, capital and enterprise and are rewarded with income in the form of rent, wages, interest or profit by the firms sector.
The second sector in the model is the Firms sector. This sector represents all of the business firms involved with the production and distribution of goods and services. Firms contribute to the circular flow as it is in a business’s best interest to obtain factors of production and use them to produce and sell goods and services.
The basic model is based on the assumption that the economy consists of only the Households and Firms sectors. Here, the model is overly and rather, unrealistically simplified so the consideration of the other sectors is absent...
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