5) Margo orders a MacBook Pro computer from The Apple Store online to use it in her graphic
design business. How will this be reflected in the figure above?
A) As a flow of a factor of production
B) As a flow of goods and services bought
C) As expenditures on goods and services
D) As goods and services supplied
E) It won’t be shown in the figure because this transaction takes place neither in goods markets
nor in factor markets.
The figure above shows governments in the circular flow.
6) In the figure above, households
A) receive transfers directly from governments.
B) buy goods and services from governments in goods markets.
C) receive transfers from governments through factor markets.
D) sell factors of production to governments.
E) pay taxes to governments through factor markets.
7) In the figure above, firms
A) pay taxes directly to governments.
B) sell goods and services to governments in goods markets.
C) receive transfers from governments through factor markets.
D) own factors of production.
E) do all of the above.
8) In the figure above, governments
A) collect taxes.
B) coordinate economic activities of households and firms.
C) hire factors of production.
D) own factors of production.
E) sell goods and services to household.
9) In the figure above, which of the following is true?
i. Governments coordinate economic activities of households and firms.
ii. Governments buy goods and services in goods markets.
iii. Households pay taxes directly to firms.
A) Only ii
B) Only i
C) Only iii
D) i and ii
E) ii and iii
10) Social Security tax is deducted from your paycheck. In the figure above this will be shown
as
A) taxes flowing from households to governments.
B) taxes flowing from firms to governments.
C) taxes flowing from households to firms.
D) wages flowing from firms to households.
E) wages flowing from firms to governments.
2.6 Essay: What, How, and For Whom?
1) It is conventional to divide the nation’s total production into four categories. Name and
explain the four categories. In the United States, which category accounts for the largest share
and the smallest share of the nation’s total production?
2) Explain the difference between consumption and capital goods.
3) Identify the four factors of production, and tell what type of income is earned by each factor.
4) What are the payments each factor of production receives?
5) What is meant by the term “human capital”?
6) What effect, if any, will a good college education have on your human capital? Explain your
answer.
7) Explain the differences between “human capital,” “financial capital,” and “capital.”
8) What is the difference between “capital” and “financial capital”? Which is a factor of
production?
9) What is the difference between the functional and the personal distribution of income?
10) In the United States, which factor of production earns the largest share of the nation’s total
income?
11) In the United States, how does the income received by the richest 20 percent of individuals
compare with the income received by the other 80 percent?
2.7 Essay: The Global Economy
1) Compare and contrast the world population with that of the United States. Is the United States
becoming a larger or a smaller part of the world’s population?
2) How many and what fraction of the world’s people live in advanced economies? In emerging
market and developing economies?
3) The International Monetary Fund divides nations into three groups. What are the three groups
and what are the characteristics of each group?
4) Discuss the distribution of income around the world. Which countries have the highest
average incomes? Which countries have the lowest average incomes? How has the distribution
of income changed in recent years?
5) Discuss the differences between developing and emerging market economies.
2.8 Essay: The Circular Flows
1) What is a market? Must a market have a single physical location?
2) Explain the structure of the circular flow model.
3) How are the roles of the household different in the goods market and in the factor markets?
4) Describe the circular flow of the economy by discussing the two markets where households
and firms meet.
5) Explain how public goods provided by the federal government differ from public goods
provided by the state and local governments.
6) Describe the government’s flows in the circular flow model of the economy.
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7) Label the flows in the simplified circular flow diagram that ignores the government.
8) Draw a circular flow diagram with households and firms and without government. Label the
markets and the flows in the circular flow diagram.
9) Explain how the largest sources of state tax revenues differs from the largest sources of
federal tax receipts.
10) What are the two largest sources of tax revenues for the U.S. federal government?
11) What is the largest source of tax revenue for the U.S. federal government and what is the
largest expenditure item of the U.S. federal government?