Question 5: In this Circular Flow example if shifts in Supply and Demand (driven

Question

Question 5: In this Circular Flow example if shifts in Supply and Demand (driven by "choices") change the "Average Price" to $3.00 then the total dollar value of Goods and Services produced would be 2,500 Units Goods & Services Business Revenues Markets Consumption Spending $5,000 $5,000 N Business Households $5.000 Factor Payments Facfors of Production $5,000 Income Factors of Production Land, Capital, Entrepreneurship, & LABOR 120 People LABOR Land. Capital &Entrepneneurahip; |25 People Answers: l. S3000 2. S6000 3. $2500 4. S7500

Explanation / Answer

Answer:

Clearly, Option (4) is correct. Change in average price to $3, producing 2500 units, will make $ 7500 worth of total goods and services in the economy. In circular flow, households provide factor services for the production of goods and services for which they are given factor payment (Wages, rent, Profit). From this money, they make consumption expenditure and thus the demand for the good is generated.

Production = Expenditure =Distribution

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