If you appreciate our work, consider supporting us:

QUESTION:

1. The economy's income and expenditure

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, households earn income when    purchase    in markets for factors of production.
Suppose Juanita earns $725 per week working as an installation technician for Stephon’s Satellite Service. She uses $8 to have a pint at Breanna’s Brewing Company. Breanna’s Brewing Company pays Gilberto $525 per week to serve as head brewer. Gilberto uses $325 to purchase satellite tv from Stephon’s Satellite Service.
Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.
Event
Market for Factors of Production
Market for Goods and Services
Gilberto spends $325 to purchase satellite tv from Stephon’s Satellite Service.
Gilberto earns $525 per week working for Breanna’s Brewing Company.
Juanita earns $725 per week working for Stephon’s Satellite Service.
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.
True or False: For the economy as a whole, expenditures must equal income.

ANSWER:

Part A

Part B

Suppose Juanita earns $725 per week working as an installation technician for Stephon’s Satellite Service. She uses $8 to have a pint at Breanna’s Brewing Company. Breanna’s Brewing Company pays Gilberto $525 per week to serve as head brewer. Gilberto uses $325 to purchase satellite tv from Stephon’s Satellite Service.
Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.
Event
Market for Factors of Production
Market for Goods and Services
Gilberto spends $325 to purchase satellite tv from Stephon’s Satellite Service.
Gilberto earns $525 per week working for Breanna’s Brewing Company.
Juanita earns $725 per week working for Stephon’s Satellite Service.
Points:
1 / 1
Close Explanation
Explanation:
In this scenario, households sell factors of production such as labor and capital in markets for factors of production when Juanita supplies her labor to Stephon’s Satellite Service and when Gilberto supplies his labor to Breanna’s Brewing Company. Moreover, a firm sells goods and services to a household in markets for goods and services when Breanna’s Brewing Company provides the beer to Juanita and Stephon’s Satellite Service provides satellite tv to Gilberto.
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.
Correct
Correct
Correct
Points:
1 / 1
Close Explanation
Explanation:
Juanita (a household) supplies her labor to Stephon’s Satellite Service (a firm). Therefore, Juanita's labor is an input that flows from a household to a firm.
The beer is provided by Breanna’s Brewing Company (a firm) to Juanita (a household). Therefore, the beer is an output that flows from a firm to a household.
Breanna’s Brewing Company (a firm) pays Gilberto (a household) $525 for his labor. Therefore, the $525 is a payment that flows from a firm to a household.
Gilberto (a household) pays Stephon’s Satellite Service (a firm) $325 for satellite tv. Therefore, the $325 is a payment that flows from a household to a firm.
True or False: For the economy as a whole, expenditures must equal income.
Correct
Points:
1 / 1
Close Explanation
Explanation:
GDP measures two things at once: the total income paid to everyone in the economy and the total expenditure on the economy's final goods and services. In the circular-flow model, the outer set of arrows shows the economy's flow of money. You can think of this flow either as total expenditures by households in the markets for goods and services or as the wages, rents, and profits paid by firms in the markets for factors of production. For the economy as a whole, expenditures must equal income.

Posted by Cleveland on September 3, 2024
Back to Questions