ECS1601 TEST BANK

Question 1 In the goods market of the circular flow model, …. 1) firms buy factors of production from consumers 2) firms buy finished products from households 3) consumers buy factors of production from firms 4) firms sell factors of production to the government 5) consumers buy finished products from firms The correct alternative is [5]. Explanation In the goods market of the circular flow model, consumers receive income in the form of salaries and wages, interest, rent and profit and use this income to purchase finished consumer goods and services. Question 2 In the factor market, … . 1) a student buys lunch at a local university cafeteria. 2) the South African Defence Force buys machine guns from a weapons manufacturer 3) a retirement fund buys shares in a major company 4) a farmer buys farmland from a retiring farmer The correct alternative is [4]. 5) a welder buys a personal computer from an electronics store Explanation A factor market is a market where factors of production such as labour, land and capital are traded. Therefore, in this case only the sale of land (i.e. farmland) will occur in a factor market