Question : In the circular flow of income, firms are the ______ of goods and services and ______ of factors of production.
Option 1: consumers, producers
Option 2: suppliers, consumers
Option 3: producers, consumers
Option 4: consumers, suppliers
Correct Answer: producers, consumers
Solution : The correct answer is (c) producers, consumers.
In the circular flow of income, firms are the producers of goods and services. They engage in the production process, combining factors of production such as labor, capital, and land to create goods and services that are then supplied to the market.
On the other hand, households are the consumers of goods and services. They purchase and consume the goods and services produced by firms, thereby providing the demand necessary for the production and sale of those goods and services.
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