Chapter 2 - Thinking Like an Economist with correct answers

Document Content and Description Below

1-- Keep the Highest: 1 / 1 1. Economic models 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 th ... e inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs. Which of the following is true regarding this economic model? Because, in reality, the economy is very large, the simplicity of the circular-flow diagram makes it useless for the purposes of modeling how dollars and resources move throughout an economy. While simple, the circular-flow diagram can still be useful for the purposes of modeling how dollars and resources move throughout an economy. Because it does not take into account the role of government, the circular-flow diagram is useless for the purposes of modeling how dollars and resources move throughout an economy. Because it does not take into account international trade, the circular-flow diagram is useless for the purposes of modeling how dollars and resources move throughout an economy. Points: 1 / 1 Close Explanation Explanation: Scientists of all types make assumptions in their models to simplify the complex world they are trying to describe. These simplifying assumptions allow scientists to focus on only the most important and generalizable components of the topic of study. Economists also make simplifying assumptions to focus on only the most important and generalizable aspects of the economy. Indeed, economies typically consist of millions of individuals interacting in many different ways. However, no model can include every detail of a system as complex as an economy. To make sense of all of the different aspects of an economy, economists must make simplifying assumptions and generalizations in order to focus on only the most important economic ideas. By grouping all individuals into households and firms and all markets into markets for goods and services and markets for factors of production, economists can model how dollars and resources flow back and forth among agents in the economy. The simplicity of the model allows those without formal backgrounds in economics to understand, at a high level, the economic activities that take place in an economy. Try Another Version Continue < Back to Assignment Attempts: 2.333 Keep the Highest: 3 / 3 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, households earn income when firms purchase resources in resource markets. Points: 1 / 1 Close Explanation Explanation: In the circular-flow model of an economy, households own all the resources. Households earn their income when firms purchase or rent these resources to use them to produce goods and services. Firms, in turn, earn revenue when households buy goods and services. Suppose Megan earns $800 per week working as jewelry appraiser for Classy's Jewelry Store. She uses $10 to buy a box of aspirin at Pillmart Pharmacy. Pillmart Pharmacy pays Larry $475 per week to work the cash register. Larry uses $300 to purchase necklace from Classy's Jewelry Store. Identify whether each of the following events in this scenario occurs in the resource market or the product market. Event Resource Market Product Market Megan earns $800 per week working for Classy's Jewelry Store. Larry spends $300 to purchase necklace from Classy's Jewelry Store. Megan spends $10 to buy a box of aspirin. Points: 1 / 1 Close Explanation Explanation: In this scenario, households sell resources in resource markets when Megan supplies her labor to Classy's Jewelry Store and when Larry supplies his labor to Pillmart Pharmacy. Moreover, a firm sells goods and services to a household in product markets when Pillmart Pharmacy provides the aspirin to Megan and Classy's Jewelry Store provides the necklace to Larry. 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 $300 Larry spends to purchase necklace from Classy's Jewelry Store Megan's labor The $475 per week Larry earns working for Pillmart Pharmacy The aspirin Megan receives Points: 1 / 1 Close Explanation Explanation: When Megan (a household) supplies her labor to any firm, labor is an input that flows from a household to a firm. When the aspirin is provided to Megan (a household), the aspirin is an output that flows from a firm to a household. Pillmart Pharmacy (a firm) pays Larry (a household) $475 for his labor. Therefore, the $475 is a payment that flows from a firm to a household. Larry (a household) pays Classy's Jewelry Store (a firm) $300 for necklace. Therefore, the $300 is a payment that flows from a household to a firm. Try Another Version Continue < Back to Assignment Attempts: 1-- Keep the Highest: 1 / 1 3. Efficiency in the production possibilities model Suppose Ireland produces only two goods: corn and smartphones. The following graph shows Ireland's current production possibilities frontier, along with six output combinations represented by black points (plus symbols) labeled A to F. C omplete the following table by indicating whether each point represents output combinations that are inefficient, efficient, or unattainable. Check all that apply. Point Inefficient Efficient Unattainable A B Point Inefficient Efficient Unattainable C D E F Points: 1 / 1 Close Explanation Explanation: Every output combination on the production possibilities frontier shows an efficient output combination for Ireland. The points on the production possibilities frontier represent all combinations of output produced using all of the nation's available resources and its current technology, such that the nation cannot produce more of one good without producing less of the other. Points located inside the production possibilities frontier, such as C and D, represent inefficient output combinations. At these points, it is possible to increase the production of both goods because some resources are unemployed. For example, point C is inefficient because it is possible for Ireland to produce at point B instead, where the economy is producing both more corn and more smartphones. Points located on the production possibilities fronti [Show More]

Last updated: 3 years ago

Preview 1 out of 16 pages