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Chapter 4: Q.28 (page 105)

Identify each of the following as involving either demand or supply. Draw a circular flow diagram and label the flows A through F. (Some choices can be on both sides of the goods market.)

a. Households in the labor market

b. Firms in the goods market

c. Firms in the financial market

d. Households in the goods market

e. Firms in the labor market

f. Households in the financial market

Short Answer

Expert verified

a. Households in the labor market -Supply-side

b. Firms in the goods market -Supply-side

c. Firms in the financial market -Demand side

d. Households in the goods market-demand side

e. Firms in the labor market-demand side

f. Households in the financial market -The supply side.

Step by step solution

01

Step 1:Defination

Circular Flow:

The phrase "circular flow" in economics refers to a model that depicts the flow of goods and services between different sectors of the economy. Demand and supply are depicted in this flow by various manufacturing parameters.

02

Explanation

a.) Households are on the supply side of the labor market. They serve as a source of labor for businesses.

b) Goods-market firms are on the supply side. Individuals are sold goods and services by the businesses.

c.) Financial market firms are on the demand side because they need money to run their businesses.

d.) In the goods market, households are on the demand side. Individuals in those houses require food and other necessities.

e.) Labor market firms are on the demand side. Labor is required by businesses to accomplish their products and services.

f)In the financial market, households are on the supply side. Households provide investment capital to the financial industry.

The supply and demand relationships in various markets are depicted in the circular flow diagram below.

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Most popular questions from this chapter

Why are the factors that shift the demand for a product different from the factors that shift the demand for labor? Why are the factors that shift the supply of a product different from those that shift the supply of labor?

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

a. Using the demand and supply framework,

predict the effects on the price, quantity

demanded, and quantity supplied.

b. With the enactment of this price floor for fish, what are some of the likely unintended

consequences in the market?

c. Suggest some policies other than the price floor to make it possible for small fishing villages to continue.

During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the natural gas that would flow through the pipeline. The thinking behind the bill was that if private firms had a guaranteed price for their natural gas, they would be more willing to drill for gas and to pay to build the pipeline.

a. Using the demand and supply framework, predict the effects of this price floor on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for natural gas, what are some of the likely unintended consequences in the market?

c. Suggest some policies other than the price floor that the government can pursue if it wishes to encourage drilling for natural gas and for a new pipeline in Alaska.

Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a minimum wage?

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