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 blue) shows the corresponding flow of inputs and outputs.
Expenditures
Households
Goods and services
Labor, capital, etc.
Incomes
Markets for
Outputs
Markets for
Inputs
Sales receipts
Goods and services
Labor, capital, etc.
Businesses
Wages, interest, etc.
Based on this model, households earn incomes when
purchase
in the markets for inputs.
Suppose Susan earns $700 per week working as a doctor for the Medical Clinic. She uses $10 to order a mojito cocktail at Little Havana. Little Havana
pays Raphael $500 per week to wait tables. Raphael uses $225 to purchase medical services from the Medical Clinic.
In the following table, identify whether each event in this scenario occurs in the markets for inputs or the markets for outputs.
Event
Susan spends $10 to order a mojito cocktail.
Raphael spends $225 to purchase medical services from the Medical Clinic.
Raphael earns $500 per week working for Little Havana.
Markets for Inputs Markets for Outputs
Which of the elements of the previous scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check
all that apply.
The mojito Susan receives
The $500 per week Raphael earns working for Little Havana
Susan's labor
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