Question

Based on this model, how do households earn income?

1) When firms purchase factors in factor markets
2) When households purchase goods and services from firms
3) When households invest in the stock market
4) When households receive government subsidies

Answer 1

Households earn income by providing labor and resources to firms in the factor market, where they sell their inputs (or factors of production). In return, firms pay for these inputs through wages and other factor payments.

Step-by-step explanation:

In a market economy like the United States, income comes from ownership of the means of production. For households, income is earned when they provide the labor and resources that firms need to produce goods and services. This is done in the factor market, where households sell their inputs (or factors of production) to firms. In return, firms pay for these inputs in the form of wages and other factor payments.