Question

All of the following are examples of spending on factors of production in the circular flow model except

A) Bima hires two students to work at his ice-cream store.
B) The Banyan Tree rents a much larger property so that it can add a restaurant to its facilities.
C) Iris buys a dozen roses for her mother's birthday.
D) "Get Fit Together" purchases 3 new treadmills for its gym.

Answer 1

Option C, where Iris buys roses for her mother's birthday, is not an example of spending on factors of production in the circular flow model; it is an expenditure in the product market for goods and services.

Step-by-step explanation:

The question asks to identify the example which is not an example of spending on factors of production in the circular flow model. According to the circular flow model, households provide factors of production—such as labor, capital, and land—to businesses in the resource market. Businesses then use these factors to produce goods and services, which are sold in the product market. Options A, B, and D all involve spending on factors of production: hiring labor, renting property (land), and purchasing capital (treadmills) for a gym. However, option C, where Iris buys roses for her mother's birthday, represents spending on goods and services in the product market, not on factors of production in the resource market.