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What do firms buy from households?
Households receive wages for their labor, rent for use of their land, interest for use of their capital, and profit for their entrepreneurial ability.
How does a market economy answer the 3 basic economic questions?
In its purest form, a market economy answers the three economic questions by allocating resources and goods through markets, where prices are generated. In its purest form, a command economy answers the three economic questions by making allocation decisions centrally by the government.
How do households supply firms with capital?
Sometimes households sell firms the land they need for their business. For example, If a business buys several lots in a neighborhood in order to build a store there. If people in a household work for a living, they sell their labor to a firm. When households put their money in savings, the banks use their money.
How are households and firms similar?
In the markets for goods and services, households are buyers and firms are sellers. In particular, households buy the output of goods and services that firms produce. In these markets, households provide firms the inputs that the firms use to produce goods and services.
What is circular flow of goods and services?
The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction.
How do firms use households as a source of income?
Firms use households (factors of production) to pay factor incomes which is rent, wages, interest and profit. Firms will use factor of production to produce output in the way of goods and services, which will be purchased by the household. In this way household incur their expenditures.
What is the relationship between households and firms?
Households are the owners of factors of production and the firms are users of factors of production. Firms use households (factors of production) to pay factor incomes which is rent, wages, interest and profit. Firms will use factor of production to produce output in the way of goods and services, which will be purchased by the household.
What is the main function of households in an economy?
1.1.2 Households. Households have the main function because they are the workers and also consumers. So they provide labour to firms and compensated with wages from the firms. Other then that as consumers they also buy goods and services from firms which constitutes as consumer expenditure.
How do firms use factor of production to produce output?
Firms will use factor of production to produce output in the way of goods and services, which will be purchased by the household. In this way household incur their expenditures. If you need assistance with writing your essay, our professional essay writing service is here to help!