Draw the interaction between Households and Firms.
Answers
Answer:
Interaction between Households and Firms
Households and firms interact with each other in two types of markets: 'Product
or commodity markets' and 'factor markets'. Commodity markets are the markets
where goods and services are bought and sold. Factor markets are the markets where
factor services like labour, land, etc., are bought and sold. For example, labour
market is one type of factor market where labour services are bought and sold. In
the capital markets, funds are lent and borrowed. In the commodity markets, firms
sell and households buy the commodities. But in the factor markets, the roles of
the households and firms are reversed - households are the sellers and firms are
the buyers of factor services. Thus, household sector sells the factor services to the
firms and receives factor incomes from them in the form of wages, rent, interest
and profits. Firms or the production units use the factor inputs to produce goods
and services which are sold to the households. The household sector pays for these
goods with money and thereby firms receive money payments from the households.
The interaction between the households and firms is shown in
Explanation:
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Fɪʀᴍs ᴜsᴇ ʜᴏᴜsᴇʜᴏʟᴅs (ғᴀᴄᴛᴏʀs ᴏғ ᴘʀᴏᴅᴜᴄᴛɪᴏɴ) ᴛᴏ ᴘᴀʏ ғᴀᴄᴛᴏʀ ɪɴᴄᴏᴍᴇs ᴡʜɪᴄʜ ɪs ʀᴇɴᴛ, ᴡᴀɢᴇs, ɪɴᴛᴇʀᴇsᴛ ᴀɴᴅ ᴘʀᴏғɪᴛ. Fɪʀᴍs ᴡɪʟʟ ᴜsᴇ ғᴀᴄᴛᴏʀ ᴏғ ᴘʀᴏᴅᴜᴄᴛɪᴏɴ ᴛᴏ ᴘʀᴏᴅᴜᴄᴇ ᴏᴜᴛᴘᴜᴛ ɪɴ ᴛʜᴇ ᴡᴀʏ ᴏғ ɢᴏᴏᴅs ᴀɴᴅ sᴇʀᴠɪᴄᴇs, ᴡʜɪᴄʜ ᴡɪʟʟ ʙᴇ ᴘᴜʀᴄʜᴀsᴇᴅ ʙʏ ᴛʜᴇ ʜᴏᴜsᴇʜᴏʟᴅ.
Hᴏᴘᴇ ɪᴛ ʜᴇʟᴘs...... ❤❤
