Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 30, Problem 1.6P
To determine
Interdependence of household consumption and labor supply decision.
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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.
Markets for
Goods and Services
Firms
Households
Markets for
Factors of Production
Based on this model, households earn income when
firms
v purchase
factors
v in factor markets.
Suppose Teresa earns $875 per week working as a corporate attorney for Rowan and Martin Associates. She uses $9 to order a mojito cocktail at Little
Havana. Little Havana pays Sam $350 per week to wait tables. Sam uses $200 to purchase legal service from Rowan and Martin Associates.
Which of the following statements is most accurate about goods and services?
They are purchased by households in the factor market.
They flow in a clockwise direction.
They are sold by businesses in the factor market.
They flow in a counterclockwise direction.
What does "factor mobility" refer to in economics? A) The movement of goods and services through an economy B) The
ability to transfer investment from one sector to another C) The movement of labor and capital between different sectors
or regions D) The fluidity of price adjustments in response to market changes
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Principles of Economics (12th Edition)
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- True or False 1. If leisure and consumption are normal goods, the labor supply curve is more likely to be backward bending when the consumer views leisure and consumption to be more substitutable for one another.arrow_forwardThe lines on the graph are budget constraints, showing the tradeoff between labor and leisure. Suppose that when the wage changes, an individual chooses to move from point A to another point on the graph. For each of the other points, where would it belong on the backward bending labor supply curve? Backward‑bendingportionVerticalportionUpward‑slopingportion Answer Bank B D F C Earrow_forwardThe 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 purchase in factor markets. Based on this model, households earn income when Suppose Alyssa earns $550 per week working as work as a flight attendant for Flyaway Airlines. She uses $9 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Tim $350 per week to wash cars. Tim 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. Factor Market Product Market Event Alyssa spends $9 to get her car washed. Tim spends $250 to purchase air travel to Hawaii from Flyaway Airlines. Ourca narns $550 ner week working for Flyaway Airlines.arrow_forward
- There are two kinds of markets in circular flow diagram in economicsThese are product markets and factor markets. A factor market is the market for goods and services.Is that true or false?arrow_forwardThe 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 Households Markets for Factors of Production Based on this model, households earn income when purchase in factor markets. Suppose Poornima earns $600 per week working as work as a flight attendant for Flyaway Airlines. She uses $9 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Manuel $450 per week to wash cars. Manuel uses $300 to purchase air travel to Hawaii from Flyaway Airlines. Firmsarrow_forwardWhat is two factors that may influence the shape of individuals’ indifference curves (flat or steep) which reflect their preferences for work or leisure? What is the difference between income effect and substitution effect under the basic work-leisure decision model?arrow_forward
- Suppose that John could work 365 days per year and could earn $200 per day for each day he worked. Draw his budget lines with respect to his labor-leisure choice.arrow_forwardBased on this model, firms earn revenue when Suppose Teresa earns $750 per week working as a pilot for Wingies. She uses $10 to take a yoga class at Big Bend. Big Bend pays Sam $475 per week to instruct yoga. Sam uses $350 to purchase international flights from Wingles. Event purchase Identify whether each of the following events in this scenario occurs in the factor market or the product market. Sam earns $475 per week working for Big Bend. Teresa spends $10 to take a yoga class. Teresa earns $750 per week working for Wingies. Factor Market Product Market in product markets. The $475 per week Sam earns working for Big Bend O Teresa's labor 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 apply. The yoga class Teresa receives The $350 Sam spends to purchase international flights from Wingiesarrow_forwardBased on this model, households earn income whenfirms purchase in factor markets. Suppose Amy earns $525 per week working as an analyst for A-Plus Accountants. She uses $10 to buy a box of aspirin at Pillmart Pharmacy. Pillmart Pharmacy pays Van $225 per week to work the cash register. Van uses $150 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 Amy spends $10 to buy a box of aspirin. Van earns $225 per week working for Pillmart Pharmacy. Van spends $150 to purchase tax services from A-Plus Accountants. 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 $225 per week Van earns working for Pillmart Pharmacy The $150 Van spends to purchase tax services from A-Plus Accountants The aspirin Amy receives Amy's laborarrow_forward
- According to economists, the satisfaction people get from their consumption activities is called:arrow_forwardBased on this model, households earn income when firms purchase factors in factor markets. Suppose Hilary earns $725 per week working as an analyst for A-Plus Accountants. She uses $10 to buy a box of aspirin at Pillmart Pharmacy. Pillmart Pharmacy pays Edison $250 per week to work the cash register. Edison uses $350 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 Edison spends $350 to purchase tax services from A-Plus Accountants. Hilary earns $725 per week working for A-Plus Accountants.arrow_forwardThis table provides some information about hourly output and revenue for a firm in a competitive market. Each factor of production (L) in the table represents one worker. For example, a total of 3 workers produce a total of 18 units per hour. Using the data provided: a. Complete the table. b.Using the data from the table construct the MRP and the MRC curves at an MRC (wage) of $20.00 per hour with MRP and MRC on the vertical and FPs on the horizontal axis.How many laborers (FPs) would be employed at $20.00 per hour? Why? c.If the employer had to increase the hourly rate by $5.00, how many laborers (FPs) would be employed Why?arrow_forward
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