Italy has comparative advantage in wine, Greece in olives. We may conclude:

Slopes of PPCs cannot be identical

Greek olive workers are more productive

Greece devotes more resources to olives

Italian winemakers are more productive

Slopes of PPCs cannot be identical

Who is cyclically unemployed?

Larry lost job in housing slump

Jason returned to labor force after college

Larry lost job in housing slump

College Level Examination Program CLEP Exams Hack

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Question 1

Which model shows households supplying factors of production and firms supplying goods & services?

Your Answer: Option(s)

Correct Answer: Option(s) A

Rationale

Circular-flow model

The circular-flow model effectively illustrates the continuous movement of resources and products in an economy, showing households supplying factors of production to firms while firms provide goods and services back to households. This model captures the interdependent relationships between different economic agents, highlighting how income flows and resource allocation occurs in a market economy.

A) Circular-flow model
This model accurately represents the interaction between households and firms, where households provide labor and other resources, and firms produce goods and services in response. The circular-flow model emphasizes the flow of money, resources, and products, making it a fundamental illustration of economic cycles.

B) Crowding-out effect
The crowding-out effect describes a scenario where increased government spending leads to a reduction in private sector investment, primarily due to higher interest rates. This concept does not address the relationships between households and firms in terms of production and consumption, making it irrelevant to the question.

C) Comparative-advantage theory
Comparative-advantage theory focuses on how individuals or nations can benefit from specializing in the production of goods in which they have a lower opportunity cost, and then trading. While it relates to production and trade, it does not specifically illustrate the flow of resources between households and firms, as required by the question.

D) Production-possibilities curve
The production-possibilities curve (PPC) demonstrates the maximum possible output combinations of two goods that an economy can produce given its resources and technology. Although it is a useful tool for analyzing trade-offs and opportunity costs, it does not depict the interactions between households and firms in supplying factors of production and goods.

Conclusion
The circular-flow model is essential for understanding the dynamics between households and firms in an economy, emphasizing the exchange of factors of production and the supply of goods and services. In contrast, the other options address different economic concepts that do not illustrate this specific relationship. This understanding is crucial for analyzing how economies function and how resources are allocated efficiently.

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Circular-flow model

Capitalist societies chiefly rely on market forces to allocate resources.

Slopes of PPCs cannot be identical.

Structural unemployment results from technological change.

Larry lost job in housing slump.

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Circular-flow model

Capitalist societies chiefly rely on market forces to allocate resources.

Slopes of PPCs cannot be identical.

Structural unemployment results from technological change.

Larry lost job in housing slump.

Free Preview Ended

Unlock Full Access

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