Question

Which one of the following is an example of the circular flow model and shows the interdependence of households and firms? a. The firms go to the resource market to supply resources that households demand and, in turn, provide households with the goods and services produced for the product markets. b. Households supply their resources to the firms in the factor markets and, in turn, demand in the product market the goods and services produced by the firms. c. The firms in the factor markets pay to households in the form of wages, interest, rent and profit⎯for resources demanded. d. Households demand their resources from the firms in the factor markets and, in turn, supply in the product market the goods and services produced by firms.

Answer 1

Answer:

Households supply their resources to the firms in the factor markets and, in turn, demand in the product market the goods and services produced by the firms.

Explanation:

Circular flow model is defined as an economics model that shows major exchanges in the form of flow of money, goods, and services between economic agents. In this scenario the economic agents are households and firms.

Such flows are usually opposite in direction, correspond in value, and are in a closed circuit.

This relationship between households and firms is exemplified by households supplying their resources to the firms in the factor markets and, in turn, demand in the product market the goods and services produced by the firms.