Question

``Disposition phase of circular flow of income involves flow of factor income from firms to households.''
Justify the statement giving valid reason.

Hint:

Disposition phase refers to the payment of factor incomes (like wages, rent, interest, profit) by firms to households for their productive services.

Answer 1

The statement is justified. In the disposition phase of the circular flow of income, production generates income for households, as they provide factors of production like land, labor, capital, and entrepreneurship to firms. Firms pay wages, rent, interest, and profits to households, which are forms of factor income. This flow from producers (firms) to factor owners (households) represents the disposition or distribution of income in the economy.