Building a Simple Economy on an Island: Understanding Production and Exchange

The video explores a hypothetical economy on an island with one person. It explains how the individual sets up a firm, provides factors of production, and receives income. The circular flow of goods and services is demonstrated, showing how the firm and household interact. The video also covers economic transactions, profit calculation, and methods to measure GDP while avoiding triple counting.

What is the primary economic activity of the individual on the island?

• Fishing

• Setting up a firm

• Tourism

• Mining

Which factor of production is NOT provided by the individual to the firm?

• Capital

• Technology

• Labor

• Land

What does the firm provide to the household in exchange for factors of production?

• Insurance

• Loans

• Goods and services

• Shares

How much does the individual pay annually for food?

• $3,500

• $1,200

• $500

• $2,300

What is the total annual income of the individual, including profit?

• $4,000

• $3,500

• $2,500

• $3,000

What is the total revenue of the firm per year?

• $500

• $1,200

• $2,300

• $3,500

What is the profit of the firm after all expenses?

• $500

• $1,000

• $1,500

• $2,000

What is the term used to describe the total value of production in the country?

• Net Domestic Product

• Gross Domestic Product

• National Income

• Economic Output

How can the GDP of the island be measured without triple counting?

• All of the above

• By counting total revenue only

• By counting total income only

• By counting total expenditures only

What does the circular flow model illustrate in this economy?

• The flow of money between banks and firms

• The exchange of goods and services between firms and households

• The trade between different countries

• The investment in technology