Answer to Question #155348 in Microeconomics for DIVYAM KUMAR SINGH

Question

Show the following transaction in the circular flow diagram. Birbhum oil 

mill produces and sells 300 litres of oil at a price of Rs. 110/litre per day. 

Birbhum oil mill engages 4 persons in his factory with a wage of Rs. 500/-

per day

Answer 1

Answer:

Step 1- Introduction

Circular flow model of an economy is used to describe the flow, or exchange of resources, goods, services, and income between various entities of the economy. The model shows how the resources flow between households, and firms. 

Step 2

In the given case, we are given two transactions, which are to be shown in the circular flow diagram. 

Transaction 1: The Birbhum oil mill sells 300 litres of oil produced by it at price Rs. 110/litre per day. 

In this, the firm is selling the final good to the households. 

So the goods will flow from firm to households, while the households will pay to the firm. 

Total amount which the households will pay to the firm will be Rs. 33,000.

Transaction 2: Birbhum oil mill appoints four workers in the factory. The wage of these workers is Rs. 500 per day. 

The workers will provide services to the firm, and then the firms will pay the workers income in the form of wages. 

 

The circular flow model of these two transactions is given below: