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Chapter 3: Problem 11

Wages, rent, interest, and profits flow from (LO3) a) business firms to households b) households to business firms c) business firms to the government d) the government to business firms

Short Answer

Expert verified
a) business firms to households

Step by step solution

01

Identifying the entities involved in the flow

The entities involved are business firms, households, and the government. We are looking for the relationship between these entities concerning wages, rent, interest, and profits.
02

Analyzing the roles of business firms, households, and the government

Business firms are the producers of goods and services. They are responsible for employing resources such as labor and capital in their production process. Households are the consumers of goods and services produced by the business firms, and they also supply resources such as labor and capital. The government regulates and facilitates this relationship by creating and enforcing rules, taxation, and providing public services.
03

Understand the flow of wages, rent, interest, and profits

Wages are paid to households for their labor services provided to business firms. Rent is paid to households for leasing their land or property to business firms. Interest is paid to households for lending their financial capital to business firms. Profits are the earnings received by business firms after deducting all expenses.
04

Determine the correct answer based on the analysis

Given our understanding of the roles and the flow of wages, rent, interest, and profits, the correct relationships are: Wages, rent, interest, and profits flow from business firms (producers) to households (consumers/resources providers). Therefore, the answer is: a) business firms to households

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Most popular questions from this chapter

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