Households supply factors of production like labor to firms, and in turn firms pay households for using these factors. Firms then produce goods and services using the factors of production, which are purchased by households, completing the circular flow between producers and consumers in the economy.

1. Topic 1: The Circular Flow Diagram

3. Households supply factors of production to firms

4. Households supply factors of production to firms
Firms pay households for use of factors of production

5. Households supply factors of production to firms
Firms pay households for use of factors of production
Households purchase goods and services from firms

6. Households supply factors of production to firms
Firms pay households for use of factors of production
Households purchase goods and services from firms
Firms produce output which is supplied to households