The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the
A) production possibilities frontier.
B) supply and demand model.
C) circular flow diagram.
D) classical model.

Question

Quizplus · Accepted Answer

The circular flow diagram is a model that shows how households and firms interact in the market economy, and the idea that all income flows ultimately to households and back to firms through the purchase of goods and services is central to this model. The production possibilities frontier represents the maximum output combinations of two goods that can be produced with given resources and technology. The supply and demand model explains how prices and quantities of goods are determined in a competitive market. The classical model explains how the economy behaves in the long run, emphasizing the role of supply factors such as technology and resources. None of these models directly address the flow of income in the economy like the circular flow diagram does.

The Idea That All Income Ultimately Goes to Households, Which