Question

Problem 2 The Circular Flow Model Please answer the following questions a true or false. 1. There are three economic actors in our circular flow model: households, firms and markets. 2. The ultimate goal for households is to acquire goods and services. 3. The ultimate goal for firms is to acquire land, labor and capital. 4. The following are all factors of production - land, labor, capital, and goods and services 5. Firms own the factors of production. 6. The product market is where households get wages, interest, and rents.

Answer 1

1) False. Circular flow model can be a 4 sector economy where open economy include the 4sector economy.

2) True. Since household wants to maximise satisfaction which can be acquired by maximising goods and services.

3) False Firm ultimate goal is to maximise profit.

4) False. Goods and services are not factor of production. Instead entrepreneur is a 4th factor of production.

5) False. Households own the factor of production.

6) False. Product market is a market whetr goods and services are sold out.