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, households earn income when purchase in markets for factors of production.

Suppose Caroline earns $625 per week working as an analyst for A-Plus Accountants. She uses $8 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Antonio $325 per week to wash cars. Antonio uses $175 to purchase tax services from A-Plus Accountants.

Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services.

Event

Market for Factors of Production

Market for Goods and Services

Caroline earns $625 per week working for A-Plus Accountants.

Antonio spends $175 to purchase tax services from A-Plus Accountants.

Antonio earns $325 per week working for Spotless Car Wash.

Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs.Check all that apply.

The $175 Antonio spends to purchase tax services from A-Plus Accountants

The car wash Caroline receives

The $325 per week Antonio earns working for Spotless Car Wash

True or False: The actual economy is more complicated than the simple one illustrated in this circular-flow diagram.

True

False