Question

Which of the following is a limitation of the simple circular flow model?1.Product markets are ignored2.Free and controlled3.The determination of product and resource prices is not explained4.Households are included, but not businesses​

Answer 1

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Answer 2

The correct option is 3.The determination of product and resource prices is not explained.

Explanation:

• The basic circular flow model has a shortcoming in that the determination of product and resource pricing is not explained.
• The circular flow model only covers companies that manufacture consumer items.
• The model also implies that prices for products, services, and production factors exist, but it does not explain how these values are decided or the influence of price changes on flows.