What are the two major entities in a simple economy of the circular flow of income?
Understand the Problem
The question is asking about the major entities involved in the circular flow of income in a simple economy. It presents options related to market structures and participants to identify the correct entities.
Answer
Firms and Households
The final answer is Firms and Households.
Answer for screen readers
The final answer is Firms and Households.
More Information
In the basic two-sector model of the circular flow of income, households and firms are the two main entities. Households provide factors of production (such as labor) to firms and receive wages, rent, and dividends, while firms produce goods and services.
Tips
A common mistake is confusing entities with the markets they operate in, such as goods and services markets and factor markets.
Sources
- Circular Flow Model Definition and Calculation - Investopedia - investopedia.com
- Circular Flow Model | Definition & Examples - Study.com - study.com
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