Going Around in Circles

Going Around in Circles

Circular Flow Model: Soybeans, Minnesota Farms and China

The agriculture system is part of our market-based economy. People, products, money, services, and other resources are all connected in this market-based economy. (A market-based economy is a system where prices for goods and services [supply] depend on how badly people want those goods and services [demand]. The prices are not set by the government.) A circular flow model can be used to show these connections.

Think of it this way: A person earns money by working as a truck driver. The driver uses the money earned to buy groceries and clothes. The stores he shops at send the money to the farmers and factories that produce the food and clothing. Those companies make more food and clothing. Then they hire trucks to ship it to the stores, so the truck driver continues earning money.

This happens across the world—even starting and ending in Minnesota. For example: Farmers in Minnesota grow soybeans. Then they sell those soybeans to China (1). In return, China pays the Minnesota farmers (2). The farmers use these funds to pay wages to employees and buy other products and services. Some of those products and services come from China (3). Often those products and services can be used by the farmer to develop new and better ways of farming (4). They can become more efficient at growing soybeans, or growing more advanced types of soybeans. (Examples: Soybeans that are higher in protein, soybeans that can survive wet or dry conditions, soybeans that are resistant to pests and disease.) Then those soybeans can be sold to China, and the circle starts again.

Circular Flow Economics at Home

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Think about an agricultural product that your household uses. Examples could be potato chips, ice cream, flour, cereal, and many others! Most likely this product is made into a usable or edible form by a processing company like Old Dutch, Kemps, Pillsbury, or General Mills. Use the circular flow model to show the connections between your household and this company. Be sure to include Work Provided, Wages Paid, Goods Produced, and Money Spent.