2. The circular-flow model The following diagram presents a circular-flow model
ID: 1174432 • Letter: 2
Question
2. The circular-flow model
The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.
Based on this model, households earn income when_____ purchase___ in factor markets.
Suppose Ginny earns $700 per week working as jewelry appraiser for Classy's Jewelry Store. She uses $8 to have breakfast at Dinah's Diner. Dinah's Diner pays Eric $475 per week to work as a short-order cook. Eric uses $175 to purchase necklace from Classy's Jewelry Store.
Identify whether each of the following events in this scenario occurs in the factor market or the product market.
Event
Factor Market
Product Market
Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply.
a)The breakfast Ginny receives
b)The $175 Eric spends to purchase necklace from Classy's Jewelry Store
c)The $475 per week Eric earns working for Dinah's Diner
d)Ginny's labor
2. The circular-flow model
The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs.
Based on this model, households earn income when_____ purchase___ in factor markets.
Suppose Ginny earns $700 per week working as jewelry appraiser for Classy's Jewelry Store. She uses $8 to have breakfast at Dinah's Diner. Dinah's Diner pays Eric $475 per week to work as a short-order cook. Eric uses $175 to purchase necklace from Classy's Jewelry Store.
Identify whether each of the following events in this scenario occurs in the factor market or the product market.
Event
Factor Market
Product Market
Eric earns $475 per week working for Dinah's Diner. _______ _____________ Eric spends $175 to purchase necklace from Classy's Jewelry Store. ________ ______ Ginny spends $8 to have breakfast. _________ ________Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply.
a)The breakfast Ginny receives
b)The $175 Eric spends to purchase necklace from Classy's Jewelry Store
c)The $475 per week Eric earns working for Dinah's Diner
d)Ginny's labor
Markets for Goods and Services Firms Households Markets for Factors of ProductionExplanation / Answer
Households earn income when Firms purchase Factors of production (Manpower) in factors market.
A. The breakfast Ginny receives: Here Ginny receives breakfast from Firms. Therefore, the flow is from Firm to Household in the Product market.
B. The $175 Eric spend to purchase necklace from Classy's Jewelry store: Here the Household buys necklace from Firm in the product market.
C. The $ 475 per week Eric earns working for Dinah's Dinner: Here house hold is earning income from firms. This represents flow from a Firm to Household.
D. Ginny's labor: Here Ginny's provides his labor to firm in the factors market. Therefore, this represents flow from Household to Firm.
Event Factor market Product market Eric earns $ 475 per week working for Dinah's Dinner Factor market Eric spends $ 175 to purchase necklace from Classy's Jewelry Product market Ginny spends $8 for breakfast Product marketRelated Questions
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