Which of the following statements illustrates that the idea of comparative advantage is embedded in the circular flow diagram?
A) Households spend money on durable and non durable goods.
B) Households are composed of individuals.
C) The total dollar value of expenditures should equal the dollar value of incomes.
D) Wages and salaries represent a major percentage of the firms' expenditures.
E) Firms use the labour they hire to produce goods and services,which they sell to households.

Question

Quizplus · Accepted Answer

The idea of comparative advantage is embedded in the circular flow diagram in that firms use the labor they hire to produce goods and services, which they sell to households. This represents the idea of specialization and trade based on comparative advantage.

Which of the Following Statements Illustrates That the Idea of Comparative