Question

In a two sector economy, the flow of factor payments moves from ________ to _________. 
 

• A. firms, households
• B. firms, government
• C. banks, households
• D. households, firms

Hint:

In a two-sector economy, households provide factors of production to firms, and firms make factor payments to households.

Answer 1

The Correct Option is D

Step 1: Understanding the flow of payments in a two-sector economy.
In a two-sector economy, there are only two main economic agents: firms and households. The firms pay for the factors of production (like labor, capital, etc.) to the households, and in return, households provide these factors (labor, capital, etc.) to the firms.
Step 2: Evaluation of the options.

• (A) firms, households: Incorrect. While firms make factor payments, they are made to households, not from firms to households in the flow of factor payments.
• (B) firms, government: Incorrect. In a two-sector economy, there is no government involved in the flow of factor payments.
• (C) banks, households: Incorrect. The banks are not directly involved in the flow of factor payments between firms and households.
• (D) households, firms: Correct. The flow of factor payments moves from households to firms in exchange for factors of production like labor and capital.

Step 3: Conclusion.
In a two-sector economy, the factor payments flow from households to firms. Final Answer:} households, firms.