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The circular flow model

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1. 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.

Image for 1. The circular flow model The following diagram presents a circular flow model of a simple economy. The out

1.Based on this model, households earn income when (households/firms) purchase ( Goods and services/ Resource) in resource markets.

Suppose Megan earns $600 per week working as an analyst for A-Plus Accountants. She uses $8 to order a mojito cocktail at Little Havana. Little Havana pays Larry $350 per week to wait tables. Larry uses $225 to purchase tax services from A-Plus Accountants.

Identify whether each of the following events in this scenario occurs in the resource market or the product market.

Event Resource Market Product Market
2.Larry spends $225 to purchase tax services from A-Plus Accountants. (Resource mareket/ Product mareket)
3.Larry earns $350 per week working for Little Havana. (Resource mareket/ Product mareket)
4.Megan spends $8 to order a mojito cocktail. (Resource mareket/ Product mareket)

5.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.

A.The mojito Megan receives

B.The $225 Larry spends to purchase tax services from A-Plus Accountants

C.The $350 per week Larry earns working for Little Havana

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