Question 1

In the circular-flow diagram, in the markets for
A)goods and services, households and firms are both sellers.
B)goods and services, households are buyers and firms are sellers.
C)the factors of production, households are buyers and firms are sellers.
D)the factors of production, households and firms are both buyers.

Accepted Answer

In the markets for goods and services, households act as buyers as they purchase goods and services from firms. Firms, on the other hand, act as sellers as they sell goods and services to households. This exchange of goods and services between households and firms occurs through the market for goods and services in the circular-flow diagram.

Question 2

In the simple circular-flow diagram, who buys the factors of production?
A)households only
B)firms only
C)both households and firms
D)neither households nor firms

Accepted Answer

The answer of In the simple circular-flow diagram, who buys...

Question 3

In the circular-flow diagram,
A)firms are buyers in the markets for goods and services.
B)households are sellers in the markets for the factors of production.
C)firms are sellers in the markets for factors of production and in the markets for goods and services.
D)dollars that are spent on goods and services flow directly from firms to households.

Accepted Answer

The answer of In the circular-flow diagram,
A)firms are buyers in...

Question 4

The two loops in the circular-flow diagram represent
A)the flow of goods and the flow of services.
B)the flow of dollars and the flow of financial assets.
C)the flow of inputs into production processes and the flow of outputs from production processes.
D)the flows of inputs and outputs and the flow of dollars.

Accepted Answer

The two loops in the circular-flow diagram represent the flows of inputs and outputs and the flow of dollars. The inner loop represents the flow of inputs and outputs, where households provide inputs (such as labor) to firms in exchange for outputs (such as goods and services). The outer loop represents the flow of dollars, where households receive income from firms in exchange for the inputs they provide, and then spend that income on goods and services produced by firms. Similarly, firms receive revenue from households for the goods and services they produce and then use that revenue to pay for the inputs they need to produce those goods and services. Therefore, the correct answer is D.

Question 5

A model that shows how dollars flow through markets among households and firms is called the
A)production possibilities frontier.
B)circular-flow diagram.
C)demand and supply diagram.
D)comparative advantage model.

Accepted Answer

The circular-flow diagram is a model that shows how dollars flow through markets among households and firms. Options A, C, and D do not represent this flow of dollars.

Question 6

Which of the following is an example of a capital input?
A)a computer
B)a share of stock
C)an hour of a worker's time
D)$50,000

Accepted Answer

The answer of Which of the following is an example...

Question 7

In the markets for the factors of production in the circular-flow diagram,
A)households are sellers and firms are buyers.
B)households are buyers and firms are sellers.
C)households and firms are both buyers.
D)households and firms are both sellers.

Accepted Answer

In the markets for the factors of production, households provide labor, land, and capital to firms in exchange for wages, rent, and interest. Therefore, households are the sellers of the factors of production and firms are the buyers.

Question 8

In the circular-flow diagram, in the markets for
A)goods and services, households and firms are both sellers.
B)goods and services, households are sellers and firms are buyers.
C)the factors of production, households are sellers and firms are buyers.
D)the factors of production, households and firms are both buyers.

Accepted Answer

The answer of In the circular-flow diagram, in the markets...

Question 9

Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?
A)a landowner leases land to a farmer
B)a farmer hires a teenager to help with harvest
C)a construction company rents trucks for its business
D)a woman buys corn for dinner

Accepted Answer

The markets for factors of production are exchanges of productive resources such as land, labor, and capital used to produce goods and services. Choice D involves the purchase of a good (corn) for consumption and does not involve any exchange of factors of production. Choices A, B, and C involve the leasing or hiring of productive resources such as land, labor, and trucks, which are all transactions in the markets for factors of production.

Question 10

The simple circular-flow diagram is a model that includes only some key players in the real economy. Which of the following key players are omitted from the simple circular-flow model?
A)households
B)firms
C)government
D)markets for factors of production

Accepted Answer

The answer of The simple circular-flow diagram is a model...

Question 11

In the circular-flow diagram, another name for goods and services produced by firms is
A)factors of production.
B)output.
C)inputs.
D)resources.

Accepted Answer

Goods and services produced by firms are considered output in the circular-flow diagram. Factors of production (such as labor and capital) and resources are inputs used by firms to produce output.

Question 12

In the markets for goods and services in the circular-flow diagram,
A)households provide firms with savings for investment.
B)households provide firms with labor, land, and capital.
C)firms provide households with output.
D)firms provide households with profit.

Accepted Answer

Firms provide households with goods and services (output) in exchange for households' spending in the markets. Option A is incorrect as households providing savings for investment is a part of the financial sector, which is not shown in the circular-flow diagram. Option B is incorrect because households' labor, land, and capital are factors of production, which are not shown in the markets for goods and services. Option D is incorrect as profit is not provided to households directly in exchange for their spending.

Question 13

In the simple circular-flow diagram,
A)households own the factors of production.
B)households buy all the goods and services that firms produce.
C)land, labor, and capital flow from households to firms.
D)All of the above are correct.

Accepted Answer

In the simple circular-flow diagram, households own the factors of production (such as land, labor, and capital), which they sell to firms in exchange for income. With this income, households then buy all the goods and services that firms produce. Therefore, all of the choices in A, B, and C are correct.

Question 14

In the markets for goods and services in the circular-flow diagram,
A)households and firms are both buyers.
B)households and firms are both sellers.
C)households are buyers and firms are sellers.
D)households are sellers and firms are buyers.

Accepted Answer

In the markets for goods and services, households are buyers because they purchase goods and services from firms, while firms are sellers because they sell goods and services to households. This is the basis of the circular flow of income and expenditure in a market economy.

Question 15

Which of the following transactions takes place in the markets for the factors of production in the circular-flow diagram?
A)Dylan receives a salary for his work as a financial analyst for an investment firm.
B)Kristin buys two business suits to wear to her job as a Chief Information Officer.
C)Jim receives clean water in his home in exchange for paying his water bill.
D)Caroline owns a nail salon and receives payments from her clients for her services.

Accepted Answer

The transaction in which Dylan receives a salary for his work as a financial analyst for an investment firm takes place in the market for labor, which is one of the markets for factors of production in the circular-flow diagram. The other choices involve transactions in the product market, which is not a market for factors of production.

Question 16

Which markets are represented in the simple circular-flow diagram?
A)markets for goods and services and markets for financial assets
B)markets for factors of production and markets for financial assets
C)markets for goods and services and markets for factors of production
D)markets for goods and services and markets for imports and exports

Accepted Answer

The simple circular-flow diagram includes two markets: the market for goods and services (where households purchase goods and services from firms) and the market for factors of production (where firms purchase labor, capital, and other inputs from households). These two markets are both included in choice C. Choice A is incorrect because it includes the market for financial assets, which is not represented in the simple circular-flow diagram. Choice B is incorrect because it only includes the market for factors of production, leaving out the market for goods and services. Choice D is incorrect because it includes markets for imports and exports, which are not explicitly included in the simple circular-flow diagram.

Question 17

In the markets for factors of production in the circular-flow diagram,
A)households provide firms with labor, land, and capital.
B)households provide firms with savings for investment.
C)firms provide households with goods and services.
D)firms provide households with revenue.

Accepted Answer

In the markets for factors of production, households provide firms with the factors of production such as labor, land, and capital in exchange for payments such as wages, rent, and interest. Therefore, option A is the best choice. Option B is incorrect as it refers to the financial market where households provide savings to firms for investment. Option C is incorrect as it refers to the product market where firms provide goods and services to households. Option D is incorrect as it refers to the revenue received by firms from the product market.

Question 18

In economics, capital refers to
A)the finances necessary for firms to produce their products.
B)buildings and machines used in the production process.
C)the money households use to purchase firms' output.
D)stocks and bonds.

Accepted Answer

Capital in economics refers to physical assets used in production. This includes buildings, machinery, equipment, tools, and any other durable goods that are used to produce goods and services. While finance is often necessary to acquire these assets, capital specifically refers to the physical items themselves. The other options listed refer to different forms of finance or financial instruments.

Question 19

In the simple circular-flow diagram, households
A)are the only decision makers.
B)own the factors of production.
C)are buyers of inputs.
D)consume only some of the goods and services that firms produce.

Accepted Answer

In the simple circular-flow diagram, households own the factors of production, namely land, labor, and capital. They provide these inputs to firms and receive income in return, which they use to purchase goods and services from firms. Therefore, households are not only buyers of inputs but also owners of the factors of production.

Question 20

The outer loop of the circular-flow diagram represents the flows of dollars in the economy. Which of the following does not appear on the outer loop?
A)wages
B)income
C)capital
D)rent

Accepted Answer

Capital flows are represented in the inner loop of the circular-flow diagram, which shows the flows of goods and services. The outer loop shows the flows of dollars and includes wages, income, and rent.

Quiz 2: Thinking Like an Economist

In the circular-flow diagram, in the markets for

In the simple circular-flow diagram, who buys the factors of production?

In the circular-flow diagram,

The two loops in the circular-flow diagram represent

A model that shows how dollars flow through markets among households and firms is called the

Which of the following is an example of a capital input?

In the markets for the factors of production in the circular-flow diagram,

In the circular-flow diagram, in the markets for

Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram?

The simple circular-flow diagram is a model that includes only some key players in the real economy. Which of the following key players are omitted from the simple circular-flow model?

In the circular-flow diagram, another name for goods and services produced by firms is

In the markets for goods and services in the circular-flow diagram,

In the simple circular-flow diagram,

In the markets for goods and services in the circular-flow diagram,

Which of the following transactions takes place in the markets for the factors of production in the circular-flow diagram?

Which markets are represented in the simple circular-flow diagram?

In the markets for factors of production in the circular-flow diagram,

In economics, capital refers to

In the simple circular-flow diagram, households

The outer loop of the circular-flow diagram represents the flows of dollars in the economy. Which of the following does not appear on the outer loop?