Question

2. The circular-flow model 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 Eleanor earns $650 per week working as an analyst for A-Plus Accountants. She uses $9 to order a mojito cocktail at Little Havana. Little Havana pays Darnell $350 per week to wait tables. Darnell uses $125 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 Darnell spends $125 to purchase tax services from A-Plus Accountants. Eleanor earns $650 per week working for A-Plus Accountants. Eleanor spends $9 to order a mojito cocktail Factor arket Product Market Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that

Answer 1

2) Answer to blank 1: Firms

    Answer to blank 2: Factors of production

Statement 1: Product market         [Because Tax service is a service purchased in product market]

Statement 2: Factor market           [Because A-Plus Accountant is a firm and Eleanor works as a labor in A-Plus Accountant]

Statement 3: Product market         [Because majito cocktail is a service purchased in product market]

Ans:

• The $125 Darnell spends to purchase tax services from A-Plus Accountant
• Eleanor's labor