In the market of factors of production according to a circular flow diagram?

Correct option is B

Correct Answer: (b) Families are sellers, firms are buyers

Explanation:

In the market for factors of production, as described in a circular flow diagram, households (families) act as sellers by providing the factors of production such as labor, land, and capital. Firms are the buyers in this market, purchasing these factors to produce goods and services.

Households receive income in the form of wages, rent, and profits for their contributions, which they use to buy goods and services in the product market, completing the circular flow. This model illustrates the interdependence between households and firms in an economy.

Information Booster:

● Factors of production include land, labor, capital, and entrepreneurship.
● Households are the owners of factors of production and provide them to firms.
● Firms use these inputs to produce goods and services, creating output for the product market.
● The circular flow diagram highlights two main markets: the factor market and the product market.
● This model assumes no government intervention or international trade in its simplest form.

Additional Knowledge:

• (Option A) Families are buyers and firms are sellers: This is true for the product market, not the factor market.
• (Option C) Families and firms are both buyers: Incorrect as their roles are distinct in the factor and product markets.
• (Option D) Families and firms are both sellers: Incorrect, as families sell factors of production while firms sell goods and services.

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