The Circular Flow Model

question 136

Multiple Choice

The circular flow model

• A)measures identical flows through the different markets
• B)shows how firms maximize profits and minimize costs
• C)shows how competitive markets interact with noncompetitive markets
• D)measures the value of income earned by the public sector
• E)measures the value added by the business sector as it uses funds

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Definitions:

Efficiency

The optimal allocation and use of resources to produce goods and services in the most cost-effective and waste-free manner.

P > MC

Indicates a scenario in price (P) is greater than marginal cost (MC), suggesting that a firm could potentially increase profits by increasing production since each additional unit produced costs less than the price it would sell for.

Monopoly

A market structure in which a single seller controls the entire market for a good or service, with no close substitutes.

Monopoly Model

A market structure where a single seller dominates the market, facing no competition, resulting in high prices and restricted output.