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Market: This is where consumers and producers come together to exchange goods and services for a price (ceteris paribus).
Income: Refers to money received on a regular basis from the production process in the form of wage, rent, interest, salary, etc.
Equity: Condition of being fair with respect to the abilities of a person or thing.

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In the circular flow of income model:
1. Households own the factors of production i.e. land, labor, capital and enterprise. They sell these factors to the firm at a price and this generates income for the households from the resource market. The households are able to gain rent, wage, interest or profit as a form of income.
2. Households receive income when they sell their factors of production. They are able to use this income generated for their expenditures for which in return they gain goods and services that are demanded by them.
3. Firms will have costs of production when they buy the factors of production but they will receive revenues when they sell their goods and services.
4. The income flow from firms to households is equal to the expenditure flow from households to firms.

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1. Operations under the free market will result in an unequal distribution of income and wealth in the economy.
2. Economists use income and wealth as indicators of standard of living and the condition of the economy as a whole.
3. The circular flow of income model is able to show how the free market is able to achieve equity in income and wealth distribution.
4. Income and wealth inequality amongst stakeholders in the economy arise because labour and capital resources are compensated differently.
5. Assuming ceteris paribus, if the sum of leakages exceeds the sum of injections in an economy, a recession will result and employment will fall. This will result in great unequal distribution of income and wealth in society.
6. If total value of imports exceeds that of exports, then the net leakage of income from the economy causes greater inequalities between low-income and high-income countries.

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Equity:
- Equity is the condition of being fair, and in the free market equity needs to be achieved in order to promote the best allocation of resources in society and to promote allocative efficiencies.
- Inequalities in the economy are detrimental to the well-being of society.
- It is worth it for society to provide money to reduce the problems arising/associated with these issues.
- Since not all members of society have access to the same factors of production, inequity and inequalities will result and the income distribution among members of society will be vast.
- Promoting equity will level the playing field and ensure that resources and benefits are distributed more fairly among market participants.

Sustainability:
- Sustainability is the ability to meet the demand of consumers while using the least amount of resources possible in order to discourage wastage - while safeguarding the demand of future generations.
- Sustainability is important in the market such that tragedy of the commons does not occur and society works in the most socially beneficial way, and promotes socially desirable behavior.

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Positives of the Free Market:
1. Helps promote competition
2. Closest to achieving allocative efficiency
3. Consumers are provided with many alternatives and substitutes
4. Least amount of external costs of benefits
Negatives of the Free market:
1. Increased imports will cause upward pressure on wages of highly educated people and downward pressure on those of low-skilled people, which also increases income inequality.
2. More leakages than injections in the economy

The free market is able to promote allocative efficiency at the cost of inequitable distribution of income because government is able to give the free market more power. As the firms have the idea of achieving profit maximization, firms will not respect the ideas of equity and sustainability as they want to benefit themselves. Therefore, though there will be allocative efficiency achieved in the free market, the inequitable income distribution caused will have a negative benefit society and set back on standards of living, hence negatively affecting a country's economy.