Chapter 2, Problem 7P

To determine

The inhabitants of the fictional economy of Atlantis use money in the form of cowry shells. Draw a circular-flow diagram showing households and firms. Firms produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and labor to firms. Identify where in the flows of cowry shells or physical things (goods and services, or resources) each of the following impacts would occur. Describe how this impact spreads around the circle.

a) A devastating hurricane floods many of the potato fields.

b) A very productive fishing season yields a very large number of fish caught.

c) The inhabitants of Atlantis discover Shakira and spend several days a month at dancing festival.

Concept Introduction:

Market:

A market is a place where consumers and producers meet and trade in goods and services.

Factors of production:

These are inputs which are used in the production of goods and services. There are main four factors of production, these are; land, labor, capital, and entrepreneurship.

Firms:

These are the units which produce goods and services for the entire economy. They employ factors of production which comes from the household sector.

Households:

This sector comprises of consumers who consume goods and services. They supply labor to firms.