A simple circular flow diagram shows that the factors of production are
A) owned by the government.
B) purchased by households.
C) purchased by businesses.
D) traded in the market for goods and services.

Question

Quizplus · Accepted Answer

The factors of production, which include land, labor, capital, and entrepreneurship, are purchased by businesses in order to produce goods and services. This is represented in the circular flow diagram as businesses buying inputs or factors of production from households and markets, which is then used to produce goods and services that are sold back to households and markets. The other choices are incorrect because the government does not necessarily own the factors of production, and households do not purchase the factors of production themselves, but rather sell their labor or land to businesses.

A Simple Circular Flow Diagram Shows That the Factors of Production