Question

2- Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities: a. Sam pays a storekeeper $1 for a quart of milk. b. Stuart earns $10,000 from his 10 percent ownership of Acme Industrial. c. Serena spends $30 on a haircut d. Sally earns $4.50 per hour working at a fast food restaurant.

Answer 1

The simple circular flow diagram is attached for your reference.

Revenue Spending G &S sold Markets for Goods & Services G&S bought Firms Households Factors of production Labor, land, capital Markets for Factors of Production Income Wages, rent, profit

A. Sam pays a storekeeper $ 1 for a quart of milk.

Here Sam purchased good from the products market and in exchange he paid $ 1.

Goods flow from Firm to Household in the Products market.

Sam spends in the products market that firm receives in the form of revenue.

B. Stuart earns $ 10,000 from his 10% ownership of Acme industrial.

Here the flow of dollar is from Firm to Household.

C. Serena spends $ 30 on a haircut.

Serena spends on services provided by the firm in the product market and pays $ 30.

Service flows from Firms to Household

Dollar flow from Household to Firm.

D. Sally earns $ 4.50 /hr working at a fast food restaurant.

Sally labor flows from the household to firm through market for factors of production.

Sally earns $ 4.50/hr in exchange of her service.

Factor of production flows from household to firm

Dollar flows from Firms to household.

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