“In a two-sector economy, the national product is equal to national income”. Comment.

In a two-sector economy, which typically includes households and businesses, the national product is indeed equal to the national income. This is based on the fundamental economic principle that the total value of goods and services produced (national product) is equivalent to the total income generated by producing them (national income).

Here's a step-by-step explanation:

1. The two-sector economy model simplifies the economic activities into two sectors: households and businesses. Households provide factors of production (like labor, capital, and resources) to businesses, and in return, they receive income.

2. Businesses use these factors of production to produce goods and services. The total value of these goods and services produced over a specific period is the national product.

3. The income households receive for providing the factors of production is the national income. This includes wages for labor, rent for land, interest for capital, and profit for entrepreneurship.

4. In this simplified model, the total value of goods and services produced (national product) should be equal to the total income generated from producing them (national income). This is because every dollar spent on goods and services flows as income to households.

5. Therefore, in a two-sector economy, the national product is equal to the national income. This is a basic identity of national income accounting.

However, it's important to note that this is a simplified model. In a more complex, multi-sector economy, there are other factors like government spending, savings, investments, and foreign trade that can cause the national product and national income to diverge.