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 purchase in product markets. ー Suppose Kyoko earns $650 per week working as jewelry appraiser for Classy's Jewelry Store. She uses $9 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Jacques $275 per week to wash cars. Jacques uses $250 to purchase necklace from Classy's Jewelry Store.

Answer 1

a) Firms earn revenue when "Household" purchases "goods and services" in product market.

b) Kyoko earns $650 per week will be part of the "Factor market".

Kyoko spending on the car wash will be part of the "Product market".

Jacques spends $250 to purchase necklace will be part of "product market.".

c) Kyoko's labor , The $250 Jacques spends to purchase necklace from Classy's jewelry store are the events which flowed from a household to a firm. The answer is "B" and "C".