Question

In: Economics

Understanding Markets a. What are the two types of markets in the Circular Flow Model and...

Understanding Markets a. What are the two types of markets in the Circular Flow Model and how do they differ?

b. What are 4 characteristics that all markets have in common?

c. Adam Smith in 1776 wrote that shortages and surpluses, like _________________________ would move the market to equilibrium.

Solutions

Expert Solution

A) :-circular flow market model is defined as the flow of resources from households to firms and of products from firms to households. these flows are accompanied by reverse flows of money from firms to households and from households to firms

Two types of market in circular flow

1) The Products market or the market for goods in which the firms are sellers and the households are buyers;
2) Resources Market or the markets for factors of production

1):-Resources Market

The sellers here are households and firms are buyers. This is because the factors of production (such as labor) are provided by the households.

2):-Products Market

The sellers here are the firms or businesses and the households are buyers.

Difference between resource and product market

The difference between resource markets and product markets is that the resource market deals in the transfer of labor, capital, land and entrepreneurship from households to firms

while the product market deals in the transfer of goods and services from the firms to households.

For example, a worker at a frozen yogurt stand's job is to sell yogurt to people on the product market while at the same time selling her own labor to firms on the resource market.

characteristics that all markets have in common.

characteristics

1):-Private property,

2):-Freedom of choice

3):-, Motivation of self intrest

4):-, competition

,5) :-limited government.

1) :-Private Property

People use its own stuff, not the government

2):-Freedom of choice

In it Entrepreneurs are encouraged to start businesses, Everyone can choose what to do/buy/sell.

3):-Motivation of self intrest.

People do things that benefit themselves,

4):-Competition

Companies have a competitive drive, thus better quality and more variety and lower prices.

5):-Limited Government

The people decide stuff, not the government (hands off approach) Companies are on their own.

C) :- sorry for this answer , i tried hard but unable to solve it.


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