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Economics Homework

1. 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.

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Based on this model, households earn income when   purchase   in resource markets.

Suppose Rina earns $600 per week working as work as a flight attendant for Flyaway Airlines. She uses $9 to order a mojito cocktail at Little Havana. Little Havana pays Musashi $350 per week to wait tables. Musashi uses $400 to purchase air travel to Hawaii from Flyaway Airlines.

Identify whether each of the following events in this scenario occurs in the resource market or the product market.

Event Resource Market Product Market
Musashi spends $400 to purchase air travel to Hawaii from Flyaway Airlines.      
Musashi earns $350 per week working for Little Havana.      
Rina spends $9 to order a mojito cocktail.      

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 $350 per week Musashi earns working for Little Havana

Rina’s labor

The mojito Rina receives

The $400 Musashi spends to purchase air travel to Hawaii from Flyaway Airlines



5. Microeconomics and macroeconomics

Determine whether each of the following topics would more likely be studied in microeconomics or macroeconomics.

  Microeconomics Macroeconomics
A consumer’s optimal choice when buying a flat-screen TV      
The government’s decision on how much to spend on public projects      
The effect of government regulation on a monopolist’s production decisions      



6. Normative and positive statements

The following table contains statements that provide some analysis of policies that address the death penalty.

Categorize each of them as positive or normative.

Statement Positive Normative
Killing people is bad.      
By executing convicted murderers, the government may deter potential murderers and, therefore, decrease the murder rate.      
It is immoral for the government to kill people.      
The government should not execute anyone, even murderers.      



7. Agreement and disagreement among economists

Suppose that Larry, an economist from an AM talk radio program, and Megan, an economist from a nonprofit organization on the West Coast, are arguing over budget deficits. The following dialogue shows an excerpt from their debate:

Megan: Most people recognize that the budget deficit has been rising considerably over the last century. We need to find the best course of action to remedy this situation.

Larry: I believe that a cut in income tax rates would boost economic growth and raise tax revenue enough to reduce budget deficits.

Megan: I actually feel that raising the top income tax rate would reduce the budget deficit more effectively.

The disagreement between these economists is most likely due to   .

Despite their differences, with which proposition are two economists chosen at random most likely to agree?

Immigrants receive more in government benefits than they contribute in taxes.

Having a single income tax rate would improve economic performance.

Rent ceilings reduce the quantity and quality of available housing.