Question

1. The economy's income and expenditure 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, households earn income when _purchase in markets for factors of production. Suppose Becky earns $625 per week working as a flight attendant for flyaway Airlines. She uses $9 to order a mojito cocktail at Little Havana. Little Havana pays Alex $400 per week to wait tables. Alex uses $125 to purchase air travel to 'Hawaii from Flyaway Airlines. Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services. Market for Factors of Production Market for Goods and Services Event Becky earns $625 per week working for Flyaway Airlines. Alex earns $400 per week working for Little Havana. Becky spends $9 to order a mojito cocktail. 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. The $400 per week Alex earns working for Little Havana Becky's labor The mojito Becky receives True or False: Gross domestic product (GDP) cannot be used to measure the economy's income. . True . False

Answer 1

The circular flow model gives us the idea of the working of an economy, there are two participants households and firms. The households provide the factors of production such as the land , labour , capital and organization and in return they receive factor rewards rent, wage , interest and profit. The firms make the goods and sell to households, the firm receives the money income.

Ans:

The households earn income when firm purchases labour and capital in markets of factors of production.

Markets of goods and Markets for factors of production services Becky earns $625 per week working for Flyaway Airlines Alex earns $400 per weekworking for Little Haryana Becky spends $9 to order a mojito cocktail

The flow from firm to house holds are

• The mojito Becky receives.
• The $400 Alex earns working for little Harvana.

FALSE.