Figure 1 1. Refer to Figure 1. If the owners of land, labor, and capital are rep
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Figure 1 1. Refer to Figure 1. If the owners of land, labor, and capital are represented by Box B of this circular-flow diagram, then by Bos A by Box by Box A. firms are sellers in Box B 2. In the circular-flow diagram, a. factors of production flow from government to firms. b. goods and services flow from households to firms c. income paid to the factors of production flows from firms to houscholds. d. spending on goods and services flows from firms to houscholds. Suppose a nation is currently producing at a point inside its roduction possibilities frontier. We know that beyond its c so inflation will occur inferior t nation is e nation is not using all available resources or is the nation is producing an efficient combination of goods or both will be a large opportunity cost if the nation tries to increase production of any 4. Which of the following transactions does not take place in the markets for the factors of production in the circular-flow diagram Kyle provides plumbing services for a plumbing company and receives an hourly wage from the for his services works as a e counselor and his clients pay him on a ieorge owns several shopping malls and receives Fent payments from the companies that operate arlos sells advertising for a newspaper and roceives a from the newspaper companyExplanation / Answer
1. Answer: c
Firms are represented by box A.
The four sector model includes household, firms government sector and foreign sector. Here box A is the firms, B is household, C is the government sector and D is the foreign sector.
2. Answer: c.
Income paid to the factors of production flows from firms to household.
The firms hire the factors and the factor income flows from firms to household.
3 Answer: b.
The nation is not using all available resources or using inferior technology or both.
The production may be inside the production possibility frontier. It is due to the under utilization of resources or low level of technology. It is not efficient allocation.
4. Answer: b.
Alfonso works as a marriage counsel and his clients pay him on a per-hour basis for his services.
In the markets for the factors of production the services flows from the household to the company and the company pays factor remuneration to the households.
Alfonso works as a marriage counselor and his service does not flow to the company and the company is not paying anything to Alfonso.
5. Answer: b.
The economy can produce at the points K,M,N but cannot produce at L, J. Any points on the production possibility curve and inside it can be produced. But any points outside it cannot be produced. The points K and N are on the production possibility curve and M is inside of it. But L and J are outside of the PPC.
6. Answer: d.
For the production of goods and services the firms hire the factors of production like land, labour, capital and entrepreneurship from the household sector. Thus the services of these factors flow from households to the firm. In returns the firma pay factor remunerations. Thus wages rent and profit flows from the firms to the household sector through the market for the factors of production.
7. Answer: c
The factors of production are also called ‘inputs’
8. Answer: d.
J, K, M. The points J, K, are on the production possibility curve and M is inside it, they are attainable. The point L is not on the PPC or inside it. It is outside of PPC.
9. Answer :a.
A, B, D. The points on the PPC shows the efficient allocation of resources. The points inside the PPC shows inefficient allocation. As such A,B and D are pints of efficient allocation and C,F and G are inefficient allocation due to underutilization of resources.
10. Answer: a.
The flow of dollars between sellers of wheat and shirts and buyers of wheat and shirts.
In a production possibility curve we can show the trade of between two goods, the opportunity cost of one good in terms of other and effect of economic growth on the production of two goods.
The flow of dollar between the seller and buyer is represented in the circular flow of economic activity.
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