2. 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.

Based on this model, firms earn revenue when purchase in product markets.

Suppose Kyoko earns $825 per week working as a corporate attorney for Rowan and Martin Associates. She uses $8 to have breakfast at Dinah's Diner. Dinah's Diner pays Jacques $375 per week to work as a short-order cook. Jacques uses $300 to purchase legal service from Rowan and Martin Associates.

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

Event

Factor Market

Product Market

Kyoko spends $8 to have breakfast.

Jacques earns $375 per week working for Dinah's Diner.

Kyoko earns $825 per week working for Rowan and Martin Associates.

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.

The $300 Jacques spends to purchase legal service from Rowan and Martin Associates

The $375 per week Jacques earns working for Dinah's Diner

The breakfast Kyoko receives

Kyoko's labor