Question

In a diagram of the circular flow of economic activity, businesses

Answer 1

The correct answer is B.

Business have a double role in economy. They are the manufacturers that produce goods and services to satisfy the needs of consumers therefore, as the graph attached shows, they participate both in the factor and product markets:

• On one side, they buy productive factors in the resource markets (land, labor and capital) and they pay for them (salaries, rents and interests respectively).
• On the other side, they produce goods and services to household in the product market, in exchange for a price. This revenue, after cost deduction, would suppose the profit they earn for the manufacturing activity.