Question

#1 based on this model, households earn income when *blank purchase *blank in factor markets

#2 identify whether each of the following events in this scenario occurs in the factor market or the product market

#3 which of the elements of this scenario represents a flow from a firm to a household? This could be a flow of dollars input or output check all that apply

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 Susan earns $625 per week working as an analyst for A-Plus Accountants. She uses $10 to order a mojito cocktail at Little Havana. Little Havana pays Raphael $325 per week to wait tables. Raphael uses $150 to purchase tax services from A-Plus Accountants. 

Identify whether each of the following events in this scenario occurs in the factor market or the product market. 

Event Factor Market Product Market 

Susan spends $10 to order a mojito cocktail. 

Raphael earns $325 per week working for Little Havana. 

Susan earns $625 per week working for A-Plus Accountants. 

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. 

• Susan's labor 

• The mojito Susan receives 

• The $325 per week Raphael earns working for Little Havana 

• The $150 Raphael spends to purchase tax services from A-Plus Accountants
  

Answer 1

Based on the circular flow diagram, households earn income when firms purchase factors of production (land, labor, capital) in factors market.

Event 1 occurs in product market because Susan buys mojito cocktail (mojito cocktail is a good, not a factor of production) in goods and services market.

Event 2 occurs in factors market because Raphael is earning money in exchange of his labor in market for factors of production.

Event 3 occurs in factors market because Susan is earning in exchange of her labor.

Scenarios that represent a flow from firm to household:

The mojito Susan receives - it's a flow of output from firm to household (Susan).

The $325 per week Raphael earns working for little Havana - flow of dollars from firm (little Havana) to household (Raphael).

Answer 2

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