In the circular ﬂow diagram, households get their ability to pay for their consumption expenditures from the
A) revenues they receive for their products.
B) costs they incur for resources.
C) incomes they earn for their resources.
D) goods and services they get in the product markets.

Question

Quizplus · Accepted Answer

In the circular flow diagram, households are the owners of the factors of production and receive income as payment for providing these resources in the factor market. This income, in turn, is used to pay for consumption expenditures in the product market. Therefore, households get their ability to pay for their consumption expenditures from the incomes they earn for their resources.

In the Circular ﬂOw Diagram, Households Get Their Ability to Pay