The economic circuit is a simplified representation (and sometimes graphically) in which the physical and monetary relationships that exist between the different agents in the economy of a country are shown. In the circuit, flows of goods, services and money that occur between the different economies of an economy are represented, which are normally: families, companies and the State.
Since each of these agents has different characteristics and functions, we are going to explain what each of them consists of.
Agents of the economic circuit
These are the different agents of the economic circuit.
The families
Group or group of people who live in the same roof and who may or may not have a family or blood relationship. Families do not have to be formed by couples, but also by individual people. However, this varies and depends a lot on the situation, which is why we speak more of home than of the term family.
These people obtain income through their work, income, through state aid or subsidies. The use of the income of these people is summarized in 3 main activities: saving the income; the consumption of goods and / or services; the payment of taxes and social contributions.
Businesses
We speak of a company when we are dealing with an organization that seeks to obtain profits through the sale of goods or services. Companies can be incorporated as such in the Mercantile Registry, although it is also possible to understand the term " "as a business or the act of obtaining money through the performance of an activity (sale of goods and / or services).
Companies produce the goods and services that, later, will be consumed by families or the State. To do this, they combine different production factors (such as machinery, land, labor, human capital, monetary capital, etc.) to be able to carry out said goods and services and be able to sell them in the market.
In addition to selling to families, they also pay wages or rents for the human factor; Likewise, in addition to selling to the State, it also pays taxes and the respective deductions for offering its production services.
The state
The state refers to the group of people who control the politics, economy and society of a given country.
The State tries to ensure certain goods or services that are not on the market, as well as guarantee the security of society with it (both at the family and business level). The most important services are education and health, as well as administrative procedures.
In order to offer these services, the State relies on the different taxes that are deducted from families and companies. For their part, the necessary production materials are purchased from companies that usually cooperate together.