Question

The following diagram presents a circular-flow model of a simple economy. The outsr 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.

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 firms purchase factors in factor markets. Suppose Hilary earns $650 per week working as a doctor for the Medical Clinic. She uses $10 to order a mojito cocktail at Little Havana. Little Havana pays Edison $200 per week to wait tables. Edison uses $250 to purchase medical services from the Medical Clinic, Identify whether each of the following events in this scenario occurs in the factor market or the product market. Event Factor Market Product Market Edison spends $250 to purchase medical services from the Medical Clinic

Answer 1

1 .Edison spends 250 $ to purchase medical Services. (PRODUCT MARKET). There is flow of services from product market to households .The service is availed by a household and not a firm .
2. Edison earns 200 $ per week working for little Havana . (FACTOR MARKET ). This is a flow to the household for the factor services provided by him . HE waited tables in Little Havana .
3. Hillary spends 10 $ to order a mojito cocktail ( PRODUCT MARKET). There is flow of dollars from a household to the market of goods and services as Hillary has bought a good .

Which of the elements of this scenario represent a flow from a firm to a household?
1) The mojito Hillary receives (flow of goods from firms to household).
2) the 200 $ per week Edison earns working for little Havana ( Flow of dollars to a household for factor services availed)