The Simple Circular-Flow Model for Households and Firms Is an Economic

question 140

Multiple Choice

The simple circular-flow model for households and firms is an economic model that focuses on the interaction between households and firms.Which of the following statements regarding the model is correct?

• A)The model is missing the interaction between firms and the resource market.Therefore,it cannot predict well.
• B)The model is missing the interaction between households and the product market.Therefore,it cannot predict well.
• C)The model has too many simplifying assumptions,and it cannot be used to make predictions about the real world.
• D)The model is a simplification of the real world,and it can be used to make predictions about the real world.
• E)The model is missing the interaction between firms and the product market.Therefore,it cannot predict well.

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Definitions:

Consumer Surplus

The contrast between what consumers intend to spend on a good or service and the actual amount they part with.

Producer Surplus

The difference between how much producers are willing to accept for a good versus how much they actually receive.

Price Support

Price set by government above free-market level and maintained by governmental purchases of excess supply.

Producer Surplus

The difference between the amount producers are willing to accept for a good or service and the actual higher market price they receive.