Question

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 factor markets. Suppose Sharon earns $525 per week working as an analyst for A-Plus Accountants. She uses $9 to order a mojito cocktail at Little Havana. Little Havana pays Paolo $425 per week to wait tables. Paolo uses $225 to purchase tax services from A-Plus Accountants. Identify whether each of the following events in this scenario occurs in the factor market or the product market. Event Factor Market Product Market Paolo spends $225 to purchase tax services from A-Plus Accountants. O

Answer 1

Based on this circular model, hA1:F10ouseholds earn income when firms purchase resources
		Market for factors of production	Market for goods and services
Paolo spends $225 to purchase tax services from A plus Accountants			Market for goods and services	This is a flow from households to firms which is a payment for services by Paolo.
Paolo earns $425 per week working at Little Havana.		Market for factors of production		Paolo supplies labor in the resource market
Sharon earns $525 per week working at A plus accountants		Market for factors of production		Sharon supplies labor in the resource market
Flow from firms to households
1. The mojito Sharon receives.
2The $425 per week Paolo earns.