In the circular flow diagram, households get their ability to pay for their consumption expenditures from the:
A) Revenues they receive for their products
B) Costs they incur for resources
C) Incomes they earn for their resources
D) Goods and services they get in the product markets

Question

Quizplus · Accepted Answer

Households earn income for their resources (such as labor) in the factor market, which they use to pay for their consumption expenditures in the product market. Option A is incorrect because households are not selling products, they are purchasing them. Option B is incorrect because households are not incurring costs for resources (they are providing resources in exchange for income). Option D is incorrect because households are not receiving goods and services in the product market, they are purchasing them.

In the Circular Flow Diagram, Households Get Their Ability to Pay