Question 1

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

In the circular-flow diagram, households are sellers in the markets for the factors of production (such as labor, land, and capital), and firms are buyers in these markets.

Question 2

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

In the circular-flow diagram, households sell factors of production (like labor, land, and capital) to firms, and firms buy these factors to produce goods and services.

Question 3

In the circular-flow diagram,
A)taxes flow from households to firms,and transfer payments flow from firms to households.
B)income payments flow from firms to households,and sales revenue flows from households to firms.
C)resources flow from firms to households,and goods and services flow from households to firms.
D)inputs and outputs flow in the same direction as the flow of dollars,from firms to households.

Accepted Answer

In the circular-flow diagram, firms provide income payments to households in exchange for the resources (inputs) they provide. On the other hand, households purchase goods and services from firms, generating sales revenue for the firms. Therefore, income payments flow from firms to households, and sales revenue flows from households to firms. Taxes and transfer payments do not flow in this direction. Resources do flow from households to firms, but goods and services flow from firms to households, not the other way around. The flow of inputs and outputs does not necessarily have to align with the flow of dollars.

Question 4

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 labor (their own time and effort), land (for building and growing crops), and capital (for investment in machinery, equipment, and supplies). This is because households own the factors of production and they supply them to firms in exchange for income (in the form of wages, rent, and interest payments). Option B is incorrect because households save their income, but firms do not rely on these savings to secure investment. Option C is incorrect because firms provide households with goods and services in the product market, not in the factor market. Option D is incorrect because firms receive revenue from the sales of their goods and services, while households receive income from providing their factors of production to firms.

Question 5

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 factors of production, households are the ones who supply labor, land, and capital to firms, making them the sellers. On the other hand, firms are the buyers of these factors of production. Therefore, choice A is the correct answer.

Question 6

In the circular-flow diagram,which of the following items flows from households to firms through the markets for goods and services?
A)goods and services
B)dollars paid to land,labor,and capital
C)dollars spent on goods and services
D)wages,rent,and profit

Accepted Answer

Households spend dollars on goods and services, which flow to firms through the markets for goods and services in the circular-flow diagram.

Question 7

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 output, which includes goods and services that satisfy their wants and needs. Households provide firms with revenue through their purchases of these goods and services, which allows firms to continue producing and providing output. Therefore, option C is the best choice. Option A is incorrect because households may also invest their savings in financial markets. Option B is incorrect because firms do not receive all three factors of production (labor, land, and capital) solely from households; they may also obtain these resources from other firms or the government. Option D is incorrect because profit is a measure of how well a firm is doing financially; it is not a good or service provided to households.

Question 8

In the circular-flow diagram,which of the following items flows from firms to households through the markets for goods and services?
A)goods and services
B)dollars paid to land,labor,and capital
C)dollars spent on goods and services
D)wages,rent,and profit

Accepted Answer

Goods and services flow from firms to households through the markets for goods and services. This represents the exchange of products between producers and consumers.

Question 9

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

Dylan receiving a salary for his work as a financial analyst represents the transaction of paying for the factor of production - labor.

Question 10

In the circular-flow diagram,which of the following items flows from firms to households through the markets for the factors of production?
A)goods and services
B)land,labor,and capital
C)dollars spent on goods and services
D)wages,rent,and profit

Accepted Answer

Wages, rent, and profit are payments made by firms to households for the use of factors of production such as labor, land, and capital. These payments flow from firms to households through the markets for factors of production. Goods and services (A) flow from firms to households through the product markets, while land, labor, and capital (B) are supplied by households to firms through the markets for factors of production. Dollars spent on goods and services (C) do not flow from firms to households but rather from households to firms through the product markets.

Question 11

In the circular-flow diagram,
A)profit flows from households to firms.
B)labor flows from households to firms.
C)services flow from households to firms.
D)All of the above are correct.

Accepted Answer

In the circular-flow diagram, labor flows from households to firms as households provide labor to firms in exchange for income. Profit flows from firms to households as firms pay income to households in exchange for the labor services provided. Services do not really flow in the circular-flow diagram, rather they are exchanged between households and firms. Therefore, only option B is correct.

Question 12

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 does not appear on the outer loop of the circular-flow diagram. The outer loop represents the flows of dollars between households and firms, including payments made for labor (wages), payments received by households (income), payments made for rent, and payments received by households for the use of their resources (such as land). Capital refers to the physical and financial assets used by firms to produce goods and services, and it is represented on the inner loop of the circular-flow diagram.

Question 13

In the circular-flow diagram,which of the following items does not flow from households to firms?
A)revenue
B)land,labor,and capital
C)factors of production
D)profit

Accepted Answer

Households do not directly provide profits to firms. Firms earn profits as a result of their production activities using factors of production (such as land, labor, and capital) that are supplied by households. The revenue earned by firms and the factors of production (i.e. land, labor, and capital) are all inputs to the production process that households supply to firms in the circular flow diagram.

Question 14

In the circular-flow diagram,
A)factors of production flow from government to firms.
B)goods and services flow from households to firms.
C)income paid to the factors of production flows from firms to households.
D)spending on goods and services flows from firms to households.

Accepted Answer

The circular-flow diagram shows the flow of goods, services, and income in an economy. In this diagram, factors of production (land, labor, capital, and entrepreneurship) flow from households to firms, and goods and services flow from firms to households. In return, income paid to the factors of production flows from firms to households. Therefore, choice C is the best answer as it correctly describes the flow of income in the circular-flow diagram.

Question 15

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 are buyers as they purchase the goods and services produced by the firms. Firms, on the other hand, are sellers as they produce and offer goods and services for sale. This is the basic model of how the circular flow of income and goods occurs in an economy.

Question 16

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 refer to the markets where businesses purchase resources such as labor, land, and capital to produce goods and services. Buying corn for dinner is a transaction in the market for goods and services, not the market for factors of production.

Question 17

The inner loop of the circular-flow diagram represents the flows of inputs and outputs.Which of the following does not appear on the inner loop?
A)wages
B)land
C)capital
D)goods and services sold

Accepted Answer

Wages do not appear on the inner loop as they are part of the outer loop, representing the flow of money, not inputs and outputs.

Question 18

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 loops in the circular-flow diagram represent the flows of inputs and outputs (goods and services) between households and firms, as well as the flow of dollars (income and spending) between these two groups. Option A is too narrow in its focus on only goods and services, while option B is too specific in its mention of financial assets. Option C is also too narrow, as it only considers the production process and ignores the broader interactions between households and firms.

Question 19

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 buy goods and services from firms, while firms sell goods and services to households. Therefore, households are buyers and firms are sellers.

Question 20

In the circular-flow diagram,which of the following items does not flow from firms to households?
A)goods
B)services
C)capital
D)profit

Accepted Answer

Capital does not flow from firms to households in the circular-flow diagram. Instead, capital typically flows from households to firms as households invest in businesses.

Quiz 2: Thinking Like an Economist: The Economist As Scientist

In the circular-flow diagram,

In the circular-flow diagram,in the markets for

In the circular-flow diagram,

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

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

In the circular-flow diagram,which of the following items flows from households to firms through the markets for goods and services?

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

In the circular-flow diagram,which of the following items flows from firms to households through the markets for goods and services?

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

In the circular-flow diagram,which of the following items flows from firms to households through the markets for the factors of production?

In the circular-flow diagram,

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?

In the circular-flow diagram,which of the following items does not flow from households to firms?

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 inner loop of the circular-flow diagram represents the flows of inputs and outputs.Which of the following does not appear on the inner loop?

The two loops in the circular-flow diagram represent

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

In the circular-flow diagram,which of the following items does not flow from firms to households?