The circular flow: A comparison of micro with macro

This paper begins with the standard simple circular flow model of macroeconomics, shown in virtually all introductory macroeconomics textbooks.  The first sketch is of a closed model where the choice is between consumption and investment.  The model grows to include government and foreign sectors.  In this most complete stage, with a government and foreign sector, the issue of leakages and injections are stressed and their influence on income becomes clear.  Again, this is common.  The paper then presents the flow within a microeconomic framework.  Whereas the macro flow illustrates money flowing between households and firms (in its simplest form), the micro flow has the money flow being interrupted by markets....the product and factor markets.  Within the product market, money and goods move between products A and B with prices as incentive, and within the factor market, money and resources move between producing product A and product B with prices of the factors of production as incentive.

The two approaches clarify the different ceteris paribus factors between the macro and micro views...in macroeconomics, income changes with prices constant, in microeconomics, income is constant and prices change.