01 May Question: 1. The circular-flow model The following diagram presents a circular-flow model of a simple econo…
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 Latasha earns $700 per week working as work as a flight attendant for Flyaway Airlines. She uses $8 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Jake $500 per week to wash cars. Jake uses $400 to purchase air travel to Hawaii from Flyaway Airlines.
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 | |
|---|---|---|---|
| Latasha earns $700 per week working for Flyaway Airlines. | |||
| Jake spends $400 to purchase air travel to Hawaii from Flyaway Airlines. | |||
| Latasha spends $8 to get her car washed. |
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.
Latasha’s labour
The $500 per week Jake earns working for Spotless Car Wash
The car wash Latasha receives
The $400 Jake spends to purchase air travel to Hawaii from Flyaway Airlines
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