Question

How many sectors in simple economy

Answer 1

There are two sectors in simple economy they are:
1.Household
2.Firms
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Answer 2

In the basic circular flow of income, or two sector circular flow of income model, the state of equilibrium is defined as a situation in which there is no tendency for the levels of income (Y), expenditure (E) and output (O) to change, that is:Y = E = O
Two sector circular flow diagram

This means that the expenditure of buyers (households) becomes income for sellers (firms). The firms then spend this income on factors of production such as labour, capital and raw materials, "transferring" their income to the factor owners. The factor owners spend this income on goods which leads to a circular flow of income.

This basic circular flow of income model consists of six assumptions:

The economy consists of two sectors: households and firms.

Households spend all of their income(Y) on goods and services or consumption (C). There is no saving (S).

All output (O) produced by firms is purchased by households through their expenditure (E).

There is no financial sector.

There is no government sector.

There is no foreign sector