Self Assessment Exercise Macroeconomics
Self Assessment Exercise Macroeconomics
Self Assessment Exercise Macroeconomics
An economy has to decide, which consumer goods (rice, wheat, clothes, etc.) and
which of the capital goods (machinery, equipment's, etc.) are to be produced. In the
same way, economy has to make a choice between civil goods (bread, butter, etc.).
The quantity in which a commodity is to be produced is set at that level where
demand equals supply. If quality produced is more or less, then there will be dis
equilibrium in the market and price will fluctuate. Hence, to maintain stable
equilibrium price it becomes necessary to make demand and supply equal. This
situation requires people to make decisions about how to allocate resources
efficiently, in order to satisfy basic needs and as many additional wants as possible.
ADVERTISEMENTS: In nutshell, an economy has to allocate its resources and choose
from different potential bundles of goods (What to produce), select from different
techniques of production (How to produce), and decide in the end, who will
consume the goods (For whom to produce).
Another method the governments use to solve the problem of scarcity is by raising
prices, but they must make sure that even the poorest consumers can afford to buy
it. It can also ask certain firms to increase their production of scarce resources or to
expand (using more factors of production).
SELF ASSESSMENT EXERCISE NO.2
Direction: This will be included in your Study Guide compilation. Answer the
questions below comprehensively.
Activity
“MY CIRCULAR FLOW DIAGRAM”
Direction: Using your creativity and artistic skill, in 1/2 size cartolina or tagboard
make a diagram of the “Circular Flow Model of the Economy”.
GUIDE QUESTIONS:
Answer the following questions below in an A4 or short size bond paper. Keep your
answer for compilation in your STUDY GUIDE.
1. What is the circular flow diagram?
The circular-flow diagram (or circular-flow model) is a graphical representation of
the flows of goods and money between two distinct parts of the economy. In other
words, is the place where firms sell the goods and services they have produced,
receiving a revenue paid by households.
2. What are the 4 main parts of the circular flow diagram?
In economics, the circular flow diagram represents the organization of an economy
in a simple economic model. This diagram contains, households, firms, markets for
factors of production, and markets for goods and services
3. What are the three parts/phases of the circular flow model?
Production phase, income phase and expenditure phase.
4. How does circular flow diagram works?
The circular flow model demonstrates how money moves through society. Money
flows from producers to workers as wages and flows back to producers as payment
for products. In short, an economy is an endless circular flow of money.
5. What do circular flow diagrams show?
A circular flow diagram represents how goods, services, and money move through
our economy. Households then offer land, labor, and capital (known as factors) to
firms so that they can then produce the goods and services.
Perfect Monopolistic
competition Monopoly Oligopoly Competition
1.No company Profit maximizer, Few Firms with large Many buyers and
holds a substantial price maker, high market share, high sellers, maximize
market. 2. The barriers to entry, barriers to entry, profits, low barriers
industry output is single seller, and interdependence, to entry and exit,
standardized. 3. price each firm has little supernormal profit in
There is freedom of discrimination. market power in its the short term,
entry and exit. own right, higher normal profits in the
price. long run.
Pros:
Achieve the Pros:
Pros: Pros:
maximum consumer
surplus and economic Low level of Products
Encourage R and
welfare, perfect competition and differentiated, firms
D, innovation and
knowledge is receive big profits has some control
economics of scale
available so there is and better-quality over price and
can be gained.
no information failure support. products could be
and allocate highly differentiated.
resources in the most
efficient way.