Do any of the elements of this scenario represent a flow from household to a firm?  This could be a flow of money, inputs, or outputs.rosa earns 700 per week working as a flight attendant for...

Do any of the elements of this scenario represent a flow from household to a firm?  This could be a flow of money, inputs, or outputs.

rosa earns 700 per week working as a flight attendant for flyaway airlines. she uses 40 to get her car detailed at spotless car wash. spotless car wash pays clancy 400 er week to detail cars. clancy uses 350 to purchase air travel to toronot from flyaway airlines.

 

-the 350 clancy spends to purchase air travel to toronto from flyaway airlines

-the car detailing rosa recieves

-the 400 per week clancy earns working for spotless car wash

-rosa's labour

Asked on by mavimalik

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Yes, some of the elements of this scenario do show flows from households to businesses.  

This question refers to a circular flow model, which is a basic model showing the relationship between various parts of an economy.  It shows that both money and inputs flow from households to firms.  In the scenario above, all of these elements involve at least some flow from households to firms.  

When Clancy buys the ticket, money flows from him to the firm.  When Rosa pays for the car detailing, the same happens.  When Clancy works at the carwash and Rosa works at the airline, their labor is flowing to the firms where they work.  

In this way, all of these elements involve a flow of some sort from a household to a firm.

michael-niagara's profile pic

Michael Ugulini | (Level 3) Educator

Posted on

All of the elements of the above scenario represent a flow from household to a firm. Consider that a free market economy is an integrated economy – one element or aspect of this type of economy affects other aspects. This intertwining of elements means that an activity or action by one element, directly or indirectly affects other elements.

First of all, Rosa earns wages of $700 per week in her role as a flight attendant at Flyaway Airlines. The flow from household (Rosa) to firm (Flyaway Airlines) is the labor that Rosa provides to the company, in exchange for her wages. Her labor output flows to the firm and addresses their daily operating needs. There is freedom of labor in a free market economy – a worker can choose where to work and who to work for. In this case, Rosa has chosen Flyaway (and they have chosen her) and the flow of her labor to them represents a vital part of their business.

The $350 that Clancy spends to purchase air travel to Toronto from Flyaway Airlines also represents a flow from household (Clancy) to firm (Flyaway Airlines). Clancy’s money flows to the airline in exchange for tickets to be able to fly to Toronto. This funds flow from Clancy to the airlines secures his plane tickets and contributes to the revenue and profits of the airline.

The car detailing that Rosa receives also involves a flow from household (Rosa) to firm (Spotless Car Wash). Rosa gives $40 to Spotless in exchange for this company’s detailing services. She is a consumer who is spending money in a free market economy as she chooses. Spotless is the beneficiary of her buying decision and also the beneficiary of the resultant cash flow into their particular business.

The $400 per week that Clancy earns working for Spotless Car Wash represents a flow from household (Clancy) to firms (Spotless Car Wash and Flyaway Airlines). Clancy’s labor flows to Spotless Car Wash. For this labor, Clancy receives $400 per week. He uses $350 of this amount to buy the aforementioned airline tickets from Flyaway Airlines.

Therefore, Clancy is responsible for a labor flow and a funds flow, respectively, to two different companies. This further shows how a free market economy is integrated. Here, one member of one household affects the business operations of two different businesses because of how he chose to spend his time (his labor) and his money earned (subsequently spent to secure services).

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