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Role of Government in the Allocation of Goods and Services

The mixed economy of the United States consists of three sectors:  the individual household, private business, and government.  Each of these sectors (parts) interact with the others in the distribution of goods and services.

People earn income by selling their goods and services to business and the government and in return people get goods and services from businesses and the government.  Businesses rely on individuals to provide the resources needed to produce the goods and services and to purchase the finished products.

Government provides services needed such as fire and police and in return hire individuals to provide the services.

This is what is termed a circular flow of goods and services.

This flow chart shows the relationship between government and the individual households.  When all sectors of the economy are included the flow chart represents the circular flow of goods and services in our economy.