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Unformatted text preview: requires exactly two workers to produce a litre of an all-encompassing consumption good that is then sold to the household. This is the only consumption good in the economy. Suppose each worker is paid £50 per week for supplying labour. There is no investment or savings in this economy. a. Draw a circular flow diagram for this simple economy, labelling the services of productive factors, goods and services produced, income and expenditure. b. What is the potential output for this economy? At this potential output, what is total expenditure in the economy? c. What tensions will occur in the economy if the number of households increases to 11,000? d. If for some reason the price of a litre of the consumption good is set at £90, what tensions will arise in this economy given the original 10,000 households?...
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This note was uploaded on 03/15/2012 for the course EC 111 taught by Professor Timhatton during the Spring '12 term at Uni. Essex.
- Spring '12
- National Income