Final answer:
Households earn income by providing labor and resources in the markets for factors of production, a concept that aligns with classical economics.
Step-by-step explanation:
Based on this model, households earn income when they provide labor and resources in the markets for factors of production. The correct answer to the question is that households earn income through participation in these markets as per classical economics principles.
Firms utilize these labor and resources to produce and sell goods and services in the product market. Households then use the income they have earned to purchase these goods and services from firms. Thus, there is a circular flow of income, consumption, and saving, as firms and households interact in the product and factor markets.