Question

Which of the following best explains why the free-market system follows a circular flow model?

A. The free choices made by consumers and producers influence each other.
B. Goods and services are constantly recycled in a circular manner.
C. The allocation of resources affects both production and distribution.
D. Profits flow in a circular way back and forth between consumers and producers.

Answer 1

a. the free choices made by consumers and producers influence each other

(supply and demand) customers want x, y, and z, so producers create x, y, and z, and so on.

Answer 2

The correct answer would be option A. The free-market system follows a circular flow model due to the fact that the free choices made by consumers and producers influence each other.The free-market is defined as a type of economic system, which is based on supply and demand, and in which the government has little or no control at all. This system uses a circular flow model, which is a graphical representation of the flow between the goods and the money that participate in the economy.