2. The circular-flow modelThe 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. Based on this model, firms earn revenue when purchase in product markets. Suppose Latasha earns $550 per week working as work as a flight attendant for Flyaway Airlines. She uses $10 to have breakfast at Dinah's Diner. Dinah's Diner pays Jake $350 per week to work as a short-order cook. Jake uses $250 to purchase air travel to Hawaii from Flyaway Airlines.Identify whether each of the following events in this scenario occurs in the factor market or the product market.EventFactor MarketProduct MarketLatasha earns $550 per week working for Flyaway Airlines. Jake spends $250 to purchase air travel to Hawaii from Flyaway Airlines. Latasha spends $10 to have breakfast. 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 $250 Jake spends to purchase air travel to Hawaii from Flyaway Airlines Latasha's labor The breakfast Latasha receives The $350 per week Jake earns working for Dinah's Diner This diagram represents the Circular Flow of Economic Activity, illustrating the continuous movement of money, resources, and goods within an economy.**Explanation of the Diagram:**1. **Firms:** - Represented in a blue box on the left side of the diagram. - Firms produce goods and services to be sold in the markets.2. **Households:** - Represented in a blue box on the right side of the diagram. - Households provide factors of production (labor, land, capital, etc.) to the firms and purchase goods and services from the markets.3. **Markets for Goods and Services:** - Represented in an orange box at the top of the diagram. - This is where firms sell goods and services to households.4. **Markets for Factors of Production:** - Represented in an orange box at the bottom of the diagram. - This is where firms acquire the necessary factors of production from households.**Arrows Indicating Flows:**- **Green arrows:** - Indicate the flow of money. - From Households to Markets for Goods and Services (households pay for goods and services). - From Markets for Factors of Production to Households (households receive payments for providing factors of production).- **Red arrows:** - Indicate the flow of goods, services, and factors of production. - From Firms to Markets for Goods and Services (firms supply goods and services). - From Markets for Factors of Production to Firms (firms acquire factors of production).This diagram effectively visualizes the interdependent relationship between households and firms within an economy, highlighting how goods, services, and payments circulate continuously.

We see a circular-flow model of a simple economy here, where firms earn revenue when a purchase is…

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. Based on this model, firms earn revenue when purchase in product markets. Suppose Latasha earns $550 per week working as work as a flight attendant for Flyaway Airlines. She uses $10 to have breakfast at Dinah's Diner. Dinah's Diner pays Jake $350 per week to work as a short-order cook. Jake uses $250 to purchase air travel to Hawaii from Flyaway Airlines. Identify whether each of the following events in this scenario occurs in the factor market or the product market. Event Factor Market Product Market Latasha earns $550 per week working for Flyaway Airlines. Jake spends $250 to purchase air travel to Hawaii from Flyaway Airlines. Latasha spends $10 to have breakfast. 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 $250 Jake spends to purchase air travel to Hawaii from Flyaway Airlines Latasha's labor The breakfast Latasha receives The $350 per week Jake earns working for Dinah's Diner

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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.

Based on this model, firms earn revenue when purchase in product markets.

Suppose Latasha earns $550 per week working as work as a flight attendant for Flyaway Airlines. She uses $10 to have breakfast at Dinah's Diner. Dinah's Diner pays Jake $350 per week to work as a short-order cook. Jake uses $250 to purchase air travel to Hawaii from Flyaway Airlines.

Identify whether each of the following events in this scenario occurs in the factor market or the product market.

Event	Factor Market	Product Market
Latasha earns $550 per week working for Flyaway Airlines.
Jake spends $250 to purchase air travel to Hawaii from Flyaway Airlines.
Latasha spends $10 to have breakfast.

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 $250 Jake spends to purchase air travel to Hawaii from Flyaway Airlines

Latasha's labor

The breakfast Latasha receives

The $350 per week Jake earns working for Dinah's Diner

This diagram represents the Circular Flow of Economic Activity, illustrating the continuous movement of money, resources, and goods within an economy.

**Explanation of the Diagram:**

1. **Firms:**
- Represented in a blue box on the left side of the diagram.
- Firms produce goods and services to be sold in the markets.

2. **Households:**
- Represented in a blue box on the right side of the diagram.
- Households provide factors of production (labor, land, capital, etc.) to the firms and purchase goods and services from the markets.

3. **Markets for Goods and Services:**
- Represented in an orange box at the top of the diagram.
- This is where firms sell goods and services to households.

4. **Markets for Factors of Production:**
- Represented in an orange box at the bottom of the diagram.
- This is where firms acquire the necessary factors of production from households.

**Arrows Indicating Flows:**
- **Green arrows:**
- Indicate the flow of money.
- From Households to Markets for Goods and Services (households pay for goods and services).
- From Markets for Factors of Production to Households (households receive payments for providing factors of production).
- **Red arrows:**
- Indicate the flow of goods, services, and factors of production.
- From Firms to Markets for Goods and Services (firms supply goods and services).
- From Markets for Factors of Production to Firms (firms acquire factors of production).

This diagram effectively visualizes the interdependent relationship between households and firms within an economy, highlighting how goods, services, and payments circulate continuously.

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