Question

Assertion (A): Households offer factor services to firms.

Reason (R): Firms supply goods and services.

Options

• Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true but Reason (R) is false.

• Assertion (A) is false but Reason (R) is true.

Answer 1

Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Explanation:

Households offer factor services to firms because they own factors of production like land, labour and capital, and they supply these factor services to firms in exchange for income (wages, rent, interest). Firms, on the other hand, produce and supply goods and services; however, the fact that firms supply goods and services is not the reason why households offer factor services. These are two related but distinct aspects of the circular flow of income. Thus, while both statements are true individually, Reason (R) does not explain Assertion (A) correctly.