The simple circular flow model shows that:
A)households are on the demand side of both product and factor markets.
B)businesses are on the supply side of both product and factor markets.
C)households are on the supply side of the factor market and on the demand side of the product market.
D)businesses are on the demand side of the product market and on the supply side of the factor market.

Question

Quizplus · Accepted Answer

The simple circular flow model shows that households provide factors of production (such as labor) to businesses in the factor market and receive income in return. The households then use this income to purchase goods and services from businesses in the product market. Therefore, households are on the supply side of the factor market and on the demand side of the product market. Conversely, businesses are on the demand side of the factor market (because they need to purchase factors of production to produce goods and services) and on the supply side of the product market (because they sell goods and services to households).

The Simple Circular Flow Model Shows That