Question

In the circular-flow diagram, firms produce a. goods and services using factors of production. b. output using inputs. c. factors of production using goods and services. d. Both (a) and (b) are correct.

Answer 1

Option A.

• A circular flow diagram shows how various goods, services and money flow through the economy and it depicts the interaction between firms and households who are responsible for this flow.
• There are two main actors in a circular flow diagram, they are: firms and households.
• The firms are responsible for the production of various goods and services for the households using various inputs.
• These inputs are provided by the households to the firms to assist in the production of final goods and services.