In the Circular-Flow Diagram

question 56

Multiple Choice

In the circular-flow diagram,

• A)profit flows from households to firms.
• B)labor flows from households to firms.
• C)services flow from households to firms.
• D)All of the above are correct.

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Definitions:

Internalize

The process of incorporating the cost of externalities into the decision-making process of firms or individuals.

Marginal Social Cost

Marginal social cost is the total cost to society of producing an additional unit of a good, including both private costs and any external costs.

External Costs

Costs incurred as a result of an economic activity that are not borne by the entities undertaking the activity but rather by other parties or society at large.

Marginal Cost

The rise in expense associated with the production of an extra unit of a product or service.