Question

Household Sector is the owner of the Factors of the Production. (True/False)

Hint:

Households = Resource Suppliers.
Firms = Resource Users / Goods Producers.

Answer 1

Step 1: Understanding the Concept:
The "Circular Flow of Income" model divides the economy into sectors. The relationship between households and firms is the most basic flow.
Step 2: Detailed Explanation:
1. Factors of production are: Land, Labour, Capital, and Entrepreneurship.
2. In economic theory, it is assumed that individuals (Households) are the ultimate owners of these resources.
3. Households provide these "Factor Services" to Firms.
4. In exchange, Firms pay "Factor Income" (Rent, Wages, Interest, Profit) back to the households.
Step 3: Final Answer:
The statement is True; the household sector provides the inputs necessary for production.