In the markets for factors of production in the circular-flow diagram,
A)households provide firms with labor,land,and capital.
B)households provide firms with savings for investment.
C)firms provide households with goods and services.
D)firms provide households with revenue.

Question

Quizplus · Accepted Answer

In the markets for factors of production, households provide firms with labor (their own time and effort), land (for building and growing crops), and capital (for investment in machinery, equipment, and supplies). This is because households own the factors of production and they supply them to firms in exchange for income (in the form of wages, rent, and interest payments). Option B is incorrect because households save their income, but firms do not rely on these savings to secure investment. Option C is incorrect because firms provide households with goods and services in the product market, not in the factor market. Option D is incorrect because firms receive revenue from the sales of their goods and services, while households receive income from providing their factors of production to firms.

In the Markets for Factors of Production in the Circular-Flow