Question : In the circular flow of income, households are the ______ of factors of production and ______ of goods and services.

 

Option 1: producers, consumers

Option 2: suppliers, consumers

Option 3: consumers, producers

Option 4: consumers, suppliers

Correct Answer: suppliers, consumers

Solution : The correct answer is (b) suppliers, consumers.

In the circular flow of income, households act as suppliers of factors of production and consumers of goods and services. Here's a breakdown of the roles:

1. Suppliers: Households supply the factors of production such as labor, land, capital, and entrepreneurship to businesses. They provide labor by working for businesses, contribute land for agricultural or commercial purposes, offer capital through investments or savings, and engage in entrepreneurial activities. As suppliers of these factors, households receive income in the form of wages, rent, interest, and profit.

2. Consumers: Households use their income to purchase goods and services produced by businesses. They act as consumers by spending their income on various products and services to satisfy their needs and wants. This consumption of goods and services drives the demand for products in the economy.

So, households are suppliers of factors of production and receive income from businesses in return. They are also consumers who use their income to purchase goods and services produced by businesses.

Therefore, the correct answer is b) suppliers, consumers.