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 in markets for factors of production. purchase Suppose Cho earns $750 per week working as a doctor for the Medical Clinic. She uses $10 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Bob $275 per week to wash cars. Bob uses $150 to purchase medical services from the Medical Clinic. 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 Market for Goods Production and Services Event Bob earns $275 per week working for Spotless Car Wash. Cho spends $10 to get her car washed. TO Bob spends $150 to purchase medical services from the Medical Clinic. 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 car wash Cho receives The $275 per week Bob earns working for Spotless Car Wash Cho's labor True or False: For the economy as a whole, expenditures must equal income. True False

Answer 1

Households earn income when firms purchase factors (labour/capital) in markets for factors of production.

Events:

Bob earns $ 275 per week - market for factors of production

Cho spends $ 10 - market for goods and services

Bob spends $ 150 - market for goods and services

Correct options:

- The car wash Cho receives

- The $ 275 per week Bob earns

The statement is correct