Reproducible Sheets
Case Study—Building an Economy around a School
Vending Machine (
/ 25 marks /15 Comm.,
/10 App.)
In order to develop an understanding of the way an
economy functions, let’s attempt to build a simple
economy around a single vending machine in your
school cafeteria. On a large piece of paper, carefully
draw a diagram of this economy as we build it
together. Use two coloured pencils to note all of the
economic activity that takes place in our simple
economy. Use one colour to note all activities
involving money payments (we’ll call this colour #1),
and a second colour (colour #2) to note all activities
involving the supply of a good or a service.
As the first step in building our model economy,
draw a black box (3 cm x 3 cm) in the centre of the
page and label it “vending machine.” With no
economy yet in place, the machine is empty. No cold
drinks for you! To build an economy, the owner of the
vending machine must purchase soft drinks and juices
from a producer and use these to fill the machine. So
let’s draw a black circle 3 cm in diameter and about 6
cm to the right of the vending machine. Label this
circle “producer.” Since the owner of the vending
machine gives the producer money, draw an arrow in
colour #1 from the vending machine to the producer to
represent this event. Draw an arrow in colour #2 to
represent the products coming to the vending machine
operator in return for the money being paid. The
machine is now full, but the economy is still not in
place.
We need consumers for the cold drinks, and this is
where you come in. Draw a black circle 3 cm in
diameter and about 6 cm to the left of the vending
machine. Label this circle “consumer.” Even though
you are very thirsty, before you can buy a cold drink
you must have money. The most satisfying way to get
money is to earn it, and one way to do this is by
finding a part-time job. As luck would have it, the
local beverage manufacturer (the producer) happens to
be hiring students. Draw an arrow in colour #2 to
represent the service of labour that you provide to your
employer. Draw another arrow in colour #1 to
represent the wages that your employer pays you in
return for the work you do.
Now that you have money in your pocket, you
might decide to quench your thirst from time to time
with a nice cold drink. Draw an arrow in colour #1 to
represent the money you put into the vending machine
to purchase cold drinks. Draw a #2-coloured arrow to
represent the cold beverages you receive from the
machine. At this stage, we are starting to see our
economy come to life.
RS 1-5
As a salaried employee, you cannot expect to
spend all the money you earn in wages because you
must pay a percentage of that money to the
government in taxes. Don’t feel too bad about this—
the operator of the vending machine and the beverage
producer must also pay taxes on their income. First
draw a black rectangle 3 cm long and about 3 cm
below the vending machine. Label this rectangle
“government.” Then draw three arrows, using colour
#1, to represent the income taxes paid to the
government by the consumer, the producer, and the
seller. In return for your tax dollars, the government
will supply your economy with important goods and
services, such as the school you attend, the roads you
use to get to that school, and the laws that set quality
standards for the foods you eat. Using colour #2, draw
three arrows to represent the products and services that
consumers, producers, and vending machine operators
receive from the government.
Oddly enough, the government also plays the role
of consumer in our model economy because the
government itself rarely does the work it sponsors, for
example, building bridges and roadways. Instead, the
government contracts the work out to the lowest
bidder. In our case, the government purchases large
quantities of beverages for meetings and conferences.
Draw the two coloured arrows to represent this
transaction.
It would be very foolish to spend your whole pay
cheque as soon as you made it. If you did, how could
you ever afford the really expensive things such as
cars, housing, and tuition? For this reason, our
economy needs a bank—an institution that allows
people to save some of their money for a later use. In
return for depositing our money there, we receive
financial services from the bank. First draw a black
rectangle 3 cm long and about 3 cm above the vending
machine. Label this rectangle “bank,” then draw two
colour-coded arrows to represent this transaction:
savings going into the bank and services coming back
in return. Producers will also need the services of a
bank from time to time, so draw two more arrows to
represent this relationship.
Similar to the government, banks play more than
one role even in a simple economy such as ours.
Vending machines are very expensive, so where did
the operator find the money to finance the purchase of
a vending machine? In this case, our owner borrowed
the money from the bank; in other words, the loan
allowed the owner to spend money the owner did not
© Oxford University Press (Canada) 2003. Permission to reproduce for classroom use restricted to schools purchasing Economics Now.
Reproducible Sheets
Case Study—Building an Economy around a
School Vending Machine (continued)
actually have at the time. In return, the owner signed
an agreement to repay the bank over a period of time
and with interest—the additional sum of money the
owner had to pay for receiving the loan. Draw two
RS 1-5
colour-coded arrows to represent this final transaction.
There are other transactions that could be included in
our model, but by now the pattern and complexity of
the economy are obvious.
Diagram:
Your diagram will be evaluated out of 20 marks:
● Communication (10 marks): Based on neatness and completion. Take pride in your work!
● Application (10 marks): Based on accuracy. Follow the instructions!
Follow-up Questions:
1. Study your diagram. Based on the simplified model created, explain what an economy is in your own
words. (Communication, 3 marks)
2. Explain why economists would use simplified models, like this one, when they can be challenged as
being too simple to be realistic. (Communication, 2 marks)
© Oxford University Press (Canada) 2003. Permission to reproduce for classroom use restricted to schools purchasing Economics Now.