Answer to Question #96661 in Microeconomics for Anindya Chowdhury

Question

1. Draw a circular-flow diagram showing households and firms for the inhabitants of the fictional
economy of Winterfell. Winterfell is a small, isolated island in the South Atlantic. At Winterfell, firms
produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and
labor to firms. Identify where in the flows of money or physical things (goods and services, or resources)
each of the following impacts would occur. Describe how this impact spreads around the circle.
a) A devastating hurricane floods many of the potato fields.
b) A very large number of fish caught due to a very productive fishing season yields
c) The inhabitants of Winterfell discover a great dancer and spend several days a month at dancing
festivals.

Answer 1

a) A devastating hurricane floods many of the potato fields. This impact would occur in the flow of resources, decreasing their amount.

b) A very large number of fish caught due to a very productive fishing season yields.

This impact would occur in the flow of resources increasing their amount.

c) The inhabitants of Winterfell discover a great dancer and spend several days a month at dancing

festivals. This impact would occur in the flows of money and services increasing their amount.