ECON205 - Homework02 - S09

ECON205 - Homework02 - S09 - 1. The circular flow model The...

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Unformatted text preview: 1. The circular flow model The diagram below presents a circular-flow model of a simple economy. The outer set of arrows shows the flow of money, and the inner set of arrows shows the corresponding flow of inputs and outputs. Produc M rI p s r J B smesses Hous 101 s L ~ R_ urc tv! r ",ts Households earn income when fi_lr_m_s __ ./_ purchase re_s_o_u_r_ce_s ./_ in Explanation: resource markets ./ . Close A In a circular flow model of an economy, households own all the resources. Households earn their income by selling these resources to firms, which use them to produce goods and services. Firms, in turn, earn revenue from selling goods and services to households. Consider the following story: Ginny earns $300 per week working as a short-order cook for Dinah's Diner. She uses $500 to buy a necklace for her daughter at Tiffany's. Tiffany's pays Stelios $950 per week to appraise jewelry. Stelios uses $10 to purchase breakfast from Dinah's Diner. Which of the following events in this story occur in resource markets? Check all that apply . ./ IRJ Stelios earns $950 per week working for Tiffany's . ./ 0 Stelios spends $10 to purchase breakfast from Dinah's Diner. "1RJ Ginny earns $300 per week working for Dinah's Diner. " 0 Ginny spends $500 to buy a necklace for her daughter. Explanation: Close A In this question, the two examples of households selling resources in resource markets are when Ginny supplies her labor to Dinah's Diner and when Stelios supplies his labor to Tiffany's. The other two events- Tiffany's providing the necklace for Ginny and Dinah's Diner providing the breakfast for Stelios-are examples of a firm selling goods and services to a household, and therefore occur in product markets. Which of the following elements of this story represent a flow of money, inputs, or outputs from a household to a firm? Check all that apply. o The necklace Ginny receives [R] Ginny's labor " 0 The $950 per week Stelios earns working for Tiffany's [RJ The $10 Stelios spends to purchase breakfast from Dinah's Diner Explanation: Close A Ginny (a household) supplies her labor to Dinah's Diner (a firm). Therefore, Ginny's labor is an input that flows from a household to a firm. The necklace (a good) is prepared by Tiffany's (a firm) for Ginny (a household). So the necklace is an output that flows from a firm to a household. Tiffany's (a firm) pays Stelios (a household) $950 for his labor. Therefore, the $950 is a payment that flows from a firm to a household. Stelios (a household) pays Dinah's Diner (a firm) $10 for breakfast. Therefore, the $10 is a payment that flows from a household to a firm. Scores: 9 11 Average: 10 /11 2. Demand- Basic concepts The law of demand is: ~I o The amount of a good that a buyer with average income is willing and able to purchase o A graph showing the relationship between the price of a good and the amount that buyers are willing and able to purchase over a range of prices o The amount of a good that buyers are willing and able to purchase at a given price...
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This note was uploaded on 04/07/2011 for the course ECON 205 taught by Professor Williams,w during the Spring '08 term at Sonoma.

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ECON205 - Homework02 - S09 - 1. The circular flow model The...

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