Question
Use the circular flow diagram to answer the question How is revenue created in the real flow of money in the economy? A. Income flows from households to the product market, becoming revenue that then flows from the product market to businesses. B. Income flows from businesses to the product market, becoming revenue that then flows from the product market to households C. Income flows from households to the resource market, becoming revenue that then flows from the resource market to businesses D. Income flows from businesses to the resource market, becoming revenue that then flows from the resource market to households.
Answer
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Tilda
Master · Tutor for 5 years
Answer
To answer the question, we need to understand the circular flow of economic activity between households and businesses. Here's the step-by-step explanation:Step 1: Identify the roles of households and businesses in the economy.- Households provide factors of production (labor, capital, land, and entrepreneurship) to businesses.- Businesses use these factors to produce goods and services.Step 2: Understand the flow of money and resources.- Households receive income (wages, rent, interest, and profits) in exchange for providing the factors of production to businesses.- Businesses receive revenue from selling goods and services to households in the product market.Step 3: Apply this understanding to the options given.- Option A suggests that income flows from households to the product market, then becomes revenue for businesses. This is incorrect because income does not flow from households to the product market; instead, it flows from businesses to households as payment for the factors of production.- Option B suggests that income flows from businesses to the product market, then becomes revenue for households. This is incorrect because income is what households receive for providing factors of production, not what they receive from the product market.- Option C suggests that income flows from households to the resource market, then becomes revenue for businesses. This is incorrect because households do not provide income to the resource market; they provide factors of production and receive income in return.- Option D suggests that income flows from businesses to the resource market, then becomes revenue for households. This is correct because businesses pay for the factors of production in the resource market, and this payment is the income for households.Answer:D. Income flows from businesses to the resource market, becoming revenue that then flows from the resource market to households.