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. Markets for Goods and Services Firms Households Markets for Factors of Production Based on this model, firms earn revenue when firmspurchase in product markets. Suppose Crystal earns $625 per week working as a doctor for the Medical Clinic. She uses $8 to have breakfast at Dinah's Diner. Dinah's Diner pays Brian $325 per week to work as a short-order cook. Brian uses $200 to purchase medical services from the Medical Clinic. Identify whether each of the folowing events in this scenario occurs in the factor market or the product market. Factor Market Product Market Event Brian earns $325 per week working for Dinah's Diner. Brian spends $200 to purchase medical services from the Medical Clinic. Crystal earns $625 per week working for the Medical Clinic.

Answer 1

Based on this diagram, companies obtain revenue when households buy goods & services in the product market.

Event	Market
Brian obtains 325 dollars working in Dinah's Diner	Factor market
Brian spends 200 dollars to buy Medical services from the clinic	Product market
Crystal obtains 625 dollars working at the clinic	Factor market

Following are the flows from the firm to the households-

-Breakfast received by Crystal

-Brian's earnings from Dinah's Diner