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 Simone earns $575 per week working as a doctor for the Medical Clinic. She uses $9 to have breakfast at Dinah's Diner. Dinah's Diner pays Rajiv $300 per week to work as a short-order cook. Rajiv uses $250 to purchase medical services from the Medical Clinic.
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
Simone spends $9 to have breakfast.
Rajiv earns $300 per week working for Dinah's Diner.
Simone earns $575 per week working for the Medical Clinic.
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 breakfast Simone receives
Simone's labor
The $300 per week Rajiv earns working for Dinah's Diner
True or False: The actual economy is more complicated than the simple one illustrated in this circular-flow diagram.
True
False