Economic goods are constantly in motion and take the form of a cycle. The circulation of goods is their economic movement, starting from the production phase and ending with consumption.

The economic circuit is divided into four phases: production, distribution, exchange and consumption (rice).

The starting point is production, in which the very creation of economic goods (material goods and services) necessary for human existence and development occurs. Production is the basis (foundation) of any economy.

Production involves the constant return of the producer of goods to the initial phase of movement (production phase), but this return must differ from the original by higher quantitative and qualitative characteristics of both the production process itself and the result obtained.

Distribution of the produced product affects all participants in production, determines the share of each person in the produced products, which depends on the total amount of goods created and on the specific contribution of an individual economic entity to production. Forms of distribution can be wages, rent, interest, profit, royalties, etc. As production grows, the amount of distributed income also increases. Distribution determines the movement of the product in the exchange phase (something remains with the producer, and something is exchanged).

The third stage of the circulation of economic goods is exchange, which covers a system of connections and relationships that allows producers to exchange the products of their labor, i.e. This is the process of movement of economic goods and services from one entity to another. Exchange deeply intrudes into production, because There is a need for workers to exchange experience and knowledge in order to achieve higher production efficiency.

The purpose of exchange is to satisfy the needs of each individual through the process of buying and selling goods and services. This stage is necessary because Each commodity producer specializes in the production of one (or group) of goods and services, but in order to satisfy his needs, he must exchange the product of his labor for the goods of other producers. This stage of social production ensures continuous communication between producers and consumers through a system for exchanging the results of production activities between all market participants.

Consumption means the use of created economic goods to satisfy the various needs of people. It can be personal (food, clothing, shoes, etc.) and industrial (machines, machines, equipment, etc.).

Consumption constitutes a special - final - stage in the circulation of economic goods. At this time, useful things disappear in the process of industrial consumption, and they must be re-produced. Thus, the movement of economic goods, which began with production, inevitably returns to its starting point.

All stages of the circulation of economic goods in social production are interconnected and interdependent.

Figure 2.2. Circulation of economic goods

The starting point is production, in which the very creation of economic goods necessary for human existence and development occurs. Production is the basis (foundation) of any economy. Production involves the constant return of the producer of goods to the initial phase, but this return must differ from the original by higher quantitative and qualitative characteristics of both the production process itself and the result obtained.

The third stage of the circulation of economic goods is exchange, which satisfies the needs of each individual through the process of buying and selling goods and services. This stage is necessary because Each commodity producer specializes in the production of one (or group) of goods and services, but in order to satisfy his needs, he must exchange the product of his labor for the goods of other producers. This stage of social production ensures continuous communication between producers and consumers through a system for exchanging the results of production activities between all market participants.

Consumption means the use of created economic goods to satisfy the various needs of people. It can be personal (food, clothing, shoes, etc.) and industrial (machines, machines, equipment, etc.).

For meet economic needs people are needed economic benefits that can be produced using the economic resources involved in production. They are called factors of production and occupy a central place in any socio-economic system. Factors of production- This part of economic resources who are actually involved in the production of economic goods. Factors of production (economic resources) include:

Earth (T)– land and other natural resources used in production (flora, fauna, minerals, water resources). Land as a production factor refers to natural resources necessary for the production of economic goods (agricultural products, metallurgy, etc.) and not being the result of human labor. Land is a practically irreproducible means of production. Income from land use got the name rent.

Labor (L)- expedient activities of people aimed at satisfying their needs. “Labor” as a factor of production is the process of realizing the abilities of people (their labor force) for productive activity. At the same time, they expend physical and intellectual effort to set other factors of production in motion. Man sets the means of production in motion, he animates them, without him they are dead. The employee's income from the use his labor force in the production process is wage.

Capital- This is any benefit that brings additional income to the owner. Capital is usually divided into physical And financial.

Real or physical capital (C)- human-produced goods (goods) used for the production of other goods (buildings, structures, machines, equipment, raw materials, semi-finished products, etc.) and bringing profit to the owner. Profit- This is the income of the entrepreneur on the capital invested in production and remuneration for entrepreneurial activity.

Main capital- part of the production capital, which fully and repeatedly takes part in the production of goods, transfers its value to the finished product in parts over a number of years. This includes buildings, structures, machinery, equipment, etc.

Working capital- part of the production capital, the value of which is completely transferred to the manufactured product, is returned in cash after its sale. Working capital is formed from cash, marketable securities, accounts receivable, inventories, finished goods, work in progress, materials, components and deferred expenses.

Financial capital addresses to financial markets(bank deposit markets, bank loan markets, securities markets, foreign exchange markets) and brings its owner income in the form percent. Percent - is the return on capital lent out .

Entrepreneurship (E) as a factor of production plays a specific role - a resource one. This is due to the fact that the entrepreneur takes upon himself: the initiative to combine all three factors into a single production process; the task of decision-making in the process of producing economic goods.

Production- the process of combining into a single whole factors: land, labor, capital and entrepreneurial abilities of the organizer in order to create material and intangible benefits necessary to satisfy the unlimited needs of society.

Production represents the main, defining stage of the reproduction cycle (reproduction cycle), because It is at this stage that the product is created. Without production there can be no consumption, so the source of economic benefits lies in production. Consumption and, accordingly, satisfaction of needs completely depend on the level of development and structure of production. At the same time, needs are constantly changing and becoming more complex, which forces manufacturers to change the structure of the process of manufacturing and creating an economic product that consumers need and can be sold at a certain price or exchanged for another product. Any activity that helps satisfy people's needs and for which they are willing to pay is productive. Therefore, production includes not only the creation of a material product, but also the provision of services, such as construction work, transportation of goods and passengers, communication services, utilities and household services, etc. The services that people are willing to pay for must satisfy human needs in the same way as material items. Workers in the service sector are the same producers as workers in the sphere of material production. The production of material goods is not only a vital necessity of human society, it has a huge impact on the development of the individual and society as a whole. Under the influence of improving tools, a person develops new knowledge and approaches to the process of creating new goods and services, while at the same time new relationships are formed between individuals and in society as a whole. Material production becomes the starting point for the formation of a corresponding political system.

Reproduction- this is a continuously repeating process of production, which represents unity: the reproduction of material goods, productive forces and production relations.

There are two types of reproduction: simple and extended.

Simple reproduction- a continuously repeating process of producing economic goods in constant quantities. It was characteristic of the pre-industrial economy, where agricultural and handicraft production based on manual labor predominated. The peculiarity of simple reproduction is that the entire surplus product goes to the personal consumption of commodity producers.

Expanded reproduction- a continuously repeating process of producing economic goods in increased quantities. The peculiarity of expanded reproduction is that in addition to reimbursing spent capital (used raw materials, materials, equipment), more advanced and efficient means of production are additionally acquired, and the qualifications of workers are constantly improving.

» Circulation of economic goods

Circulation of economic goods

Return back to

Economic circulation (circular flow) is a circular movement of real economic goods, accompanied by a counter flow of cash income and expenses.

Secondly, the scheme abstracts from the role of the state. The role in the modern world is very diverse, since it affects both the agents of the market economy and the product and credit markets. If we abstract from the role of credit, then the functions of the state in the circuit can be represented as follows.

The role of the state in the circulation

Households and firms pay taxes to the government, receiving in turn transfer payments and subsidies. In addition, the government carries out large purchases of both consumer and industrial nature in all markets.

Third, the circular model can be refined by including international trade.

The economic circulation model is important not only for understanding the mechanism of functioning of a market economy, but also for studying the specifics of the functioning of various systems. To approach their analysis, let us briefly dwell on the main economic goals that individuals, firms and society as a whole strive for.

There are two polar mechanisms for resource distribution: a command (centrally planned) economy, when all decisions on the use of resources and distribution of products are made by the will of a single central body, and a market economy, when the distribution of resources is carried out by independent decisions and actions of independent economic agents. In a command economy, what, how and for whom to produce is decided by the central government. But what about the market economy? After all, economic agents, when making certain decisions, are guided only by personal interest. If these decisions are not coordinated by society, then how can society influence them? However, an attentive reader of the previous three issues of "ES" has probably already guessed - through prices. And indeed it is.

Let's try to build the simplest model of the functioning of a market economy. Let's first figure out who the economic agents are. These are, of course, producers (firms) and consumers (households). However, their troubles will now noticeably increase.

Note that the basis of a market economy is private property in general and private ownership of resources in particular. Labor belongs to the bearer of labor, land to the landowner, even the firms themselves with their production capacities ultimately belong to specific people. Thus, each household ends up owning some factors of production: almost certainly labor, and sometimes land and capital. Some of these resources are consumed within the households themselves, but what happens to the rest? They are offered by households for sale in the market. Who are the buyers in this market? Of course, firms that place a demand for resources in order to make goods from them for sale on another market - on the goods market we already know, where the buyers are, in turn, households. The circle closes (see diagram - drawing).

The circulation of money and economic goods in a market economy.

Consumers sell the resources they own to buy goods on the market and satisfy their needs. Producers buy resources to sell the goods they produce and make a profit.

Note that through the price system in the market of goods and services it is determined what to produce, and in the resource market - how to produce. With a question: for whom to produce? - the situation is somewhat more complicated. In the resource market, only the price of a resource unit is determined, i.e., the amount of money that each owner receives for the sale of this unit.

However, the question of the distribution of resources themselves between households remains outside the framework of the model under consideration (as well as economic theory in general).

If you look closely at the diagram, it will become clear that so far we have dealt only with its upper half, that is, with the goods market. Indeed, in issue. 2 "ES" we studied consumer demand for goods and services, without saying anything about where consumer income comes from and how it is determined. In issue 3, we considered the behavior of producers in commodity markets, and resource prices were considered to be given externally. It is now clear that consumer income and resource prices are determined in the lower half of the diagram - the resource market.

Note that, in principle, we could construct the study of microeconomic theory according to a different scheme, dividing the drawing into two parts with an imaginary line - not horizontal, as we did, but vertical.

In this case, we would first consider the household as buyer and seller, and then the firm as seller and buyer. We took a different route, looking first at the household as the buyer and the firm as the seller. Consequently, we only have to study the household as a seller and the company as a buyer, which is what this issue of “ES” will be entirely devoted to.

After this, in the next, 5th, issue we will be able to consider the market for all goods and resources simultaneously (i.e. the entire figure), analyzing the conditions under which this market is in equilibrium. We will go even a little further and for the first time try to assess how “well” this market works, that is, how it copes with the task of allocating resources and how it allows us to answer the three questions we posed: what? How? for whom?

But this is ahead, but for now the resource market awaits us. Generally speaking, studying the market for resources after the market for goods has already been studied turns out to be in some sense uncomplicated. Firstly, because the same technical apparatus of supply and demand curves is used and, secondly, because assumptions have already been made about what is the driving force and criterion for the selection of economic agents. The consumer maximizes his utility, and the producer maximizes the resulting economic profit.

In fact, the mechanism of supply and demand operates in factor markets in exactly the same way as in commodity markets. However, the very formation of supply and demand in factor markets has some peculiarities. So, on the demand side, the peculiarity here is that the demand for resources is a derivative demand, that is, it is determined by the demand for the product in the production of which this resource is used (see lecture 32).

Features of supply in the land, labor and capital markets are discussed in lectures 36, 37 and 38, respectively.

Of course, the diagram of the functioning of a market economy presented in the figure is just a very simplified model that abstracts from many real processes and phenomena. However, this model turns out to be quite useful for a student of economics, just as a geographical map turns out to be useful for a traveler, although it does not reflect all the features of the area.

What remains beyond the scope of the model under consideration? Let us name two points that are most important for us.

First, in reality, not all resources used are offered to the market by households. Consumers supply firms only with so-called primary resources (for example, worker’s labor, land for building a hotel).

The remaining resources (nails, photocopying machines, oil tankers, etc.) are supplied to one company by another. In our model, where all production was aggregated into a single production sector of the economy, there was no place to reflect this phenomenon.

Note that only the supply in the primary resource markets has its own specific differences from the supply in the goods market. In the markets of all other resources, supply is formed in exactly the same way as in commodity markets; it’s just that the company offers for sale not a consumer good, but a production resource.

Secondly, the “pure” market economy, the model of which we have built, does not actually exist.

Even the most liberal state regulates the market to one degree or another, and this especially applies to the resource market.

This is understandable: after all, it is in the resource market that the income of members of society is determined, which means that this issue is at the very center of public interests. Therefore, state regulation, for example, of the labor market (the main source of livelihood for the vast majority of people in any society) in the form of establishing a minimum wage, maximum working hours, etc. is very common even in the most “market” countries.

In a real economy, there are two opposing mechanisms for resource distribution: a command economy, when all decisions on the use of resources and distribution of products are made by a single central body, and a market economy, when the distribution of resources is carried out by independent decisions of independent economic agents.

Economic agents are producers (firms) and consumers (households).

How do they interact? The basis of a market economy is private property in general and private ownership of resources in particular. Labor belongs to the bearer of labor, land belongs to the landowner, and the firms themselves ultimately belong to specific people. Each household owns some factors: almost certainly labor (working family members), and sometimes land and capital. Some of these resources are consumed within the households themselves, and the rest are offered by households for sale on the market. The buyers of these resources are firms that demand the resources in order to make goods from them for sale in another market - the goods market, where the buyers in turn are households. The model of the circulation of resources and economic benefits is presented in Fig. 2.2.

Rice. 2.2. Circulation of resources and economic benefits

Consumers sell the resources they own to buy goods on the market and satisfy their needs. Producers buy resources to sell the goods they produce and make a profit. The price of resources, goods and services in the market determines WHAT and HOW to produce.

The presented diagram of the functioning of a market economy is a simplified model that abstracts from many real processes. Two important points remain outside the model. Firstly, not all resources used are offered to the market by households. They supply firms only with so-called primary resources (for example, worker labor, land for construction). The remaining resources are supplied to one company by another (furniture makers buy wood, fabric, nails from other companies, etc.). Secondly, the model leaves no room for the state. Even the most liberal state regulates the labor market, resource market, securities market, etc. Thus, the labor market is regulated by establishing a minimum wage, maximum working hours, etc. The resource market (coal, oil, etc.) is also regulated. etc.), since it is in the resource market that the main income of society is determined.

The circulation of goods and resources in microeconomics is accompanied. Economic agents

Circulation of economic goods

More on topic 2.5. Circulation of resources and economic benefits: