Answered: The following diagram presents a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 blue) shows the corresponding flow of inputs and outputs.

Based on this model, households earn incomes when ____(options: households, firms) purchase ______ (options: goods and services, inputs) in the markets for inputs.

Suppose Kate earns $575 per week working as a doctor for the Medical Clinic. She uses $8 to buy a box of aspirin at Pillmart Pharmacy. Pillmart Pharmacy pays Hubert $225 per week to work the cash register. Hubert uses $225 to purchase medical services from the Medical Clinic.

In the following table, identify whether each event in this scenario occurs in the markets for inputs or the markets for outputs.

Which of the elements of the previous scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply.

A. Kate’s labor

B. The $225 per week Hubert earns working for Pillmart Pharmacy

C. The aspirin Kate receives

Sales receipts
Goods and services
Markets for
Expenditures
Goods and services
Outputs
Households
Businesses
Labor, capital, etc.
Labor, capital, etc.
Wages, interest, etc.
Incomes
Markets for
Inputs

Suppose Kate earns $575 per week working as a doctor for the Medical Clinic. She uses $8 to buy a box of aspirin at Pillmart Pharmacy. Pillmart
Pharmacy pays Hubert $225 per week to work the cash register. Hubert uses $225 to purchase medical services from the Medical Clinic.
In the following table, identify whether each event in this scenario occurs in the markets for inputs or the markets for outputs.
Event
Markets for Inputs
Markets for Outputs
Hubert earns $225 per week working for Pillmart Pharmacy.
Kate spends $8 to buy a box of aspirin.
Kate earns $575 per week working for the Medical Clinic.

Expert Solution

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A circular flow diagram shows the flow of goods and services between different sectors of an economy. A two sector model includes only firms and households.

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