Answer to Question #161279 in Microeconomics for DIVYAM KUMAR SINGH

Question

Write down the basic functions of the household and firm with respect to circular flow diagram

Answer 1

The circular flow diagram is a basic model used to show the flow of goods and money in the economy between producers and consumers. In this case, the firms are the producers while households are consumers. The basic function of the household is to consume goods and services offered by the firms and also offering the factors of production like land, labor, and capital to the firms so that the firms can produce products for consumption. On the other hand, the firm offers goods to the households whereby they take the factors of production from the households then produce goods and services consumers need. They purchase the factors of production through wages from the household.