Chapter 10, Problem 1MCQ

To determine

The correct option for the circular-flow diagram.

Explanation of Solution

The circular flow diagram represents the flow of money and resources in the market. It consists of households, firms, factor markets, and goods and services markets.

Households own the factors of production such as land and labor, and firms own the goods and services. The household purchases goods and services from the market for goods and services and pay the money to the firm while the firm purchases factors of production (mainly land and labor) from the factor market and pay the money to the household.

So, the circular flow of the diagram is a simple model of macroeconomics in which households own the factors of production.

Option “c” is correct.