In a circular flow of model of a market system:
a-households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses
b- businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households
c- households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses
d- A and B are both correct
Answer : According to the concept of the circular flow of model of a market system the correct answer is D which states that “A and B are both correct “
Statement A says that “households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses”&statement B says that “businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households”.
Explanation to the above answer : These are actually the daily activities of a market structure. These are the functioning which are performed in the market structure on a daily basis. For instance – households can be referred to as either capital, or labour etc. And they provide various services to the business industry to manufacture goods. A business cannot operate if the households do not provide the services to the business. In the same way, businesses with these services produces the end products which can be used by the households for their daily needs. Hence, this is called the flow of circulation where one party gives the other, and then the other party returns to the first party and this goes on.