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19 August, 20:45

Which of the following is a limitation of the simple circular flow model? A. Product markets are ignored. B. Resource markets are ignored. C. The determination of product and resource prices is not explained. D. Households are included, but not businesses. Explain Your Answer:

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  1. 19 August, 22:27
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    C. The determination of product and resource prices is not explained

    Explanation:

    Circular Flow of Income is flow of payments & receipts for - goods, services & factor services between different sectors of economy (firms & households).

    Households provide factors of productions to firms, firms pay them factor incomes in return.

    Firms provide goods & services to households, households pay them prices as consumption expenditure (from factor incomes earned) in return.

    So: Both product & resource markets, both households & businesses are included.

    The limitation is that : It doesn't state anything about prices in product market & resource markets.
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Home » Business » Which of the following is a limitation of the simple circular flow model? A. Product markets are ignored. B. Resource markets are ignored. C. The determination of product and resource prices is not explained. D.
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