Chapter 2 Thinking Like an Economist

Figure 2-2

106. Refer to Figure 2-2. Boxes A and B of this circular-flow diagram represent

a.	firms and households.
b.	households and government.
c.	the markets for goods and services and the markets for financial assets.
d.	the markets for goods and the markets for services.

107. Refer to Figure 2-2. Boxes C and D of this circular-flow diagram represent

a.	households and government.
b.	firms and government.
c.	the markets for goods and services and the markets for financial assets.
d.	the markets for goods and services and the markets for factors of production.

108. Refer to Figure 2-2. If Box A of this circular-flow diagram represents firms, then which box represents households?

a.	Box B
b.	Box C
c.	Box D
d.	Any one of the other boxes (B, C, or D) could represent households.

109. Refer to Figure 2-2. If households are sellers in the markets represented by Box D of this circular-flow diagram, then

a.	Box D must represent the markets for factors of production.
b.	Box C must represent the markets for goods and services.
c.	firms are buyers in the markets represented by Box D.
d.	All of the above are correct.

110. Refer to Figure 2-2. If households are buyers in the markets represented by Box C of this circular-flow diagram, then

a.	Box C must represent the markets for the factors of production.
b.	Box D must represent the markets for goods and services.
c.	firms are sellers in the markets represented by Box C.
d.	All of the above are correct.

111. Refer to Figure 2-2. If the owners of land, labor, and capital are represented by Box B of this circular-flow diagram, then

a.	households are represented by Box A.
b.	firms are represented by Box C.
c.	firms are represented by Box A.
d.	firms are sellers in Box B.

112. Refer to Figure 2-2. If the outer loop of this circular-flow diagram represents flows of dollars, then the inner loop includes

a.	flows of goods and services from households to firms.
b.	flows of inputs from households to firms.
c.	flows of rent payments paid to owners of land.
d.	flows of wages and salaries paid to workers.

113. Refer to Figure 2-2. If the flow of goods and services is part of what is represented by the inner loop of this circular-flow diagram, then

a.	the flow of factors of production is also part of what is represented by the inner loop.
b.	the flow of income paid to households is also part of what is represented by the inner loop.
c.	the flow of revenue to firms is also part of what is represented by the inner loop.
d.	households must be sellers of output.

114. Refer to Figure 2-2. Devin works as an attorney for a corporation and is paid a salary in exchange for the legal services he performs. Juan owns office buildings and rents his buildings to companies in exchange for rent payments. If Devin’s income is represented by a flow of dollars from Box D to Box B of this circular-flow diagram, then Juan’s income is represented by a flow of dollars

a.	from Box A to Box C.
b.	from Box C to Box A.
c.	from Box B to Box D.
d.	from Box D to Box B.

115. Refer to Figure 2-2. Carla regularly buys fruits and vegetables at a grocery store. Roberto regularly pays a lawn-care company to mow his lawn. If the flow of fruits and vegetables from the grocery store to Carla is represented by an arrow from Box C to Box B of this circular-flow diagram, then the money paid by Roberto to the lawn-care company is represented by an arrow

a.	from Box A to Box D.
b.	from Box B to Box C.
c.	from Box C to Box B.
d.	from Box D to Box A.

116. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and

a.	society’s preferences.
b.	the available production technology.
c.	a fair distribution of the output.
d.	the available demand for the output.