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Questions and Answers
In the circular flow model of economic activity, which two main players are involved?
In the circular flow model of economic activity, which two main players are involved?
- Households and governments
- Households and firms (correct)
- Firms and governments
- Consumers and producers
Where do households and firms communicate in the circular flow model?
Where do households and firms communicate in the circular flow model?
- Retail market and wholesale market
- Product market and factor market (correct)
- Stock market and bond market
- Labor market and commodity market
What do businesses receive from the product market in the circular flow model?
What do businesses receive from the product market in the circular flow model?
- Investment
- Subsidies
- Tax incentives
- Revenue (correct)
What do households bring to the product market for consumption purposes?
What do households bring to the product market for consumption purposes?
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What is the outcome for both parties after a voluntary exchange in the circular flow model?
What is the outcome for both parties after a voluntary exchange in the circular flow model?
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Study Notes
Circular Flow Model of Economic Activity
- Two main players involved: households and firms
Communication and Exchange
- Households and firms communicate in the product market
Product Market Transactions
- Businesses receive revenue from the product market
- Households bring goods and services to the product market for consumption purposes
Outcome of Voluntary Exchange
- Both parties (households and firms) benefit from the exchange: households receive goods and services, firms receive revenue
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