The circular flow of economic activity can be summed up as:
A. households earn money by selling their factors of production to firms in the factor market and use that money to buy goods and services from firms in the product market.
B. firms earn money by selling their factors of production to households in the factor market and use that money to buy goods and services from households in the product market.
C. households buy factors of production from firms and use them to produce goods and services, which they sell to other households.
D. households earn money by selling their factors of production to firms in the product market and use that money to buy goods and services from firms in the factor market.
E. firms buy goods and services from other firms, who in turn buy goods and services from yet other firms.
Go with A
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That's correct. The circular flow of economic activity can be summarized as households earning money by selling their factors of production (such as labor) to firms in the factor market and using that money to buy goods and services from firms in the product market.
To determine the correct answer to this question, let's analyze the options:
A. households earn money by selling their factors of production to firms in the factor market and use that money to buy goods and services from firms in the product market.
In this option, it correctly describes households earning money by selling their factors of production to firms in the factor market and then using that money to purchase goods and services from firms in the product market. This aligns with the basic concept of the circular flow of economic activity, where households are the suppliers of factors of production and consumers of goods and services.
By considering the other options:
B. firms earn money by selling their factors of production to households in the factor market and use that money to buy goods and services from households in the product market.
C. households buy factors of production from firms and use them to produce goods and services, which they sell to other households.
D. households earn money by selling their factors of production to firms in the product market and use that money to buy goods and services from firms in the factor market.
E. firms buy goods and services from other firms, who in turn buy goods and services from yet other firms.
Options B, C, D, and E do not accurately describe the circular flow of economic activity.
Therefore, the correct answer is A. households earn money by selling their factors of production to firms in the factor market and use that money to buy goods and services from firms in the product market.