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b) Explain briefly the following figure. Supply of final goode nd for tinal goods Households Firms mand for factors Supply of factors

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Answer #1

The given figure represents the circular flow diagram. It is the representation of the flow of goods and money between two parts of the economy.

The arrow of demand for final goods represents that households demand final goods and spend their money in buying goods and services produced by firms.

The arrow of supply of final goods represents that firms supply goods and services they have produced and receiving revenue paid by households.

The arrow of supply of factors represents that households offer their labor, capital and other factors such as land and receiving income for their use.

The arrow of demand for factors represents that firms demand land, labor and other factors for the production of goods and services and in return pay wages, rent to households.

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