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Question 14 of 75

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the:

A. production possibilities frontier.
B. supply and demand model.
C. circular flow diagram.
D. classical model.



Answer :

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Final answer:

The circular flow model explains how income moves between households and firms in the economy.


Explanation:

The central idea of the circular flow of income is:

  1. Households receive income from providing factors of production.
  2. They then use this income to purchase goods and services from firms.
  3. Firms, in turn, use the payments received to pay for factors of production.

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