Happy Chinese New Year to all you muggers out there! While this Mugalomaniac was out getting income (I) from consumers today, I realised that there actually was a Circular Flow of Oranges. JC2s, take out the notes that came around the end of last year. JC1s, borrow their notes on aggregate demand and aggregate supply.
The Circular Flow of Oranges
Every Chinese New Year, Oranges are exchanged between visiting relatives on both sides of the family. So much so that you don't know how many pairs of hands your oranges have passed through, or how many people have "recycled" them. This recycling is a common occurrence, which leads me to believe that it is possible to apply the "Circular Flow of Income" to this situation.
Here are two simplified diagrams to illustrate the similarites. Some details present in the actual economic diagram are not included here. Fig.1 is NOT recommended to be used for mugging.
Fig. 2
Now we can also calculate Aggregate Demand for oranges!
Aggregate Demand
C: Consumption
I: Investment
G: Govt. Spending
X: Exports
M: Imports
Hence, AD = C+I+G+(X-M)
Aggregate demand for oranges
C: Your Consumption
I: New oranges some other people bought to swap with you
G: Extra oranges people gave you
X: Oranges you gave away
M: Oranges you received
In a free market with perfect competition and zero information failure, ideally there would be no externalities, and people would give and receive oranges two at a time. You would end with the same amount of oranges you started with and X-M=0
Labels: Circular Flow of Oranges
