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Microeconomics
Quick questions on The market economy and circular flow - TCE Economics (Tasmania)
3short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is key features of a market economy?Show answer
A market economy rests on a few features. Private ownership of resources and firms gives owners the right to use and trade property. Freedom of choice lets consumers buy what they want and firms produce what they choose. The profit motive drives firms to supply what people will pay for.
What is the two sector model?Show answer
The simplest circular flow has two sectors, households and firms, linked by two markets. In the factor (resource) market, households supply land, labour, capital and enterprise to firms and receive rent, wages, interest and profit in return. In the product market, firms supply goods and services and households pay for them. Money flows one way and resources and goods flow the other, around a closed loop.
What is equilibrium in the flow?Show answer
The economy is in equilibrium when total leakages equal total injections.
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