The two sectors in a two-sector circular flow model are the firm sector and the household sector.
Explanation:
The circular flow model is a simplified representation of the flow of goods, services, and money in an economy. It shows the interdependence between different sectors of the economy. In a two-sector circular flow model, there are only two sectors involved: firms and households.
1. Firm Sector:
- Firms are the producers of goods and services in an economy.
- They hire factors of production such as labor, capital, and land.
- Firms produce goods and services, which are sold to the households.
2. Household Sector:
- Households are the consumers of goods and services in an economy.
- They own and supply factors of production to the firms.
- Households receive income from the firms in the form of wages, rent, interest, and profits.
- They use this income to purchase goods and services from the firms.
The Flow of Resources and Income:
- Factors of production (labor, capital, land) flow from households to firms.
- Firms use these resources to produce goods and services.
- Goods and services flow from firms to households.
- Households consume these goods and services.
- In return for the resources provided, households receive income from the firms.
- This income is used by households to purchase goods and services from the firms, completing the circular flow.
Conclusion:
In a two-sector circular flow model, the two sectors involved are the firm sector, which produces goods and services, and the household sector, which consumes these goods and services. The flow of resources and income between these two sectors forms the basis of the circular flow model.