The inhabitants of the fictional economy of Atlantis use money in the form of cowry shells. Draw a circular-flow diagram showing households and firms. 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 cowry shells 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 productive fishing season yields a very large number of fish caught. c. The inhabitants of Atlantis discover Shakira and spend several days a month at dancing festivals.

Create a circular-flow diagram with two loops. One loop representing the flow of money (cowry shells) and the other representing the flow of goods, services, and resources. Illustrate two types of economic agents: households and firms. Households buy potatoes and fish from firms, provide land and labor to firms. Firms produce potatoes and fish. Don't forget to include the flow of cowry shells between the households and firms.

When the hurricane floods the potato fields, the production of potatoes decreases. This leads to a shortage of potatoes in the market. The consequence of this shortage is an increase in the price of potatoes due to higher demand and lower supply. As a result, households will pay more cowry shells for the available potatoes.

When there is a very productive fishing season, many fish are caught, resulting in a surplus of fish in the market. With an abundant supply of fish, the price of fish decreases. Consequently, households will need to spend fewer cowry shells to buy fish and may increase their consumption of fish due to lower prices.

When the inhabitants of Atlantis discover Shakira and spend several days a month at dancing festivals, they reduce their working hours, meaning less labor is provided to the firms. This decrease in labor may lead to a reduction in the production of potatoes and fish. Additionally, the increase in popularity of dancing festivals may potentially create new goods and services, like music, dance lessons, or festival tickets. The households may decide to spend a portion of their cowry shells on these new goods and services, potentially altering the distribution of cowry shells in the economy. In conclusion, by using a circular-flow diagram and analyzing different scenarios, we can understand the potential impacts that various events have on an economy and how these impacts spread around the circle.