Question

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Which best explains how a free-market system has a circular flow of influences?


In order to be efficient, producers recycle resources back to nature.


Wages flow in a circular way back and forth between consumers and producers.


The allocation choices made by the government occur in natural cycles.


Consumer decisions affect producers, and producer decisions affect consumers.

Answer 1

The statement that best explains how a free-market system has a circular flow of influences is that consumer decisions affect producers, and producer decisions affect consumers.

Explanation:

• In a free-market, the needs and wants registered by the potential customer is considered as demand.
• This demand, along with some other factors related to feasibility, governs the supply of products that come into the market.
• The customers, in turn, have to choose from what the producer has offered.
• Hence, the cycle of consumer and producer decisions affecting each other continues.