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Explain the dual role played by households and firms in an economy.

Asked by Topperlearning User 5th June 2015, 9:02 AM
Answered by Expert

The firms are production units. They collect different factors of production and produce different types of goods. The dual roles played by the firms are:

  1. They produce and sell different products in exchange of product-prices.
  2. They purchase different factors of production by paying factor-prices to the owners of those factor services.

Households are consumption units. The dual roles played by the households are:

  1. They purchase different consumer goods for self-consumption and pay prices for these goods.
  2. They are also the owners of different factors of production and sell these factors to the firms. They earn factor income for supplying these factors. 
Answered by Expert 5th June 2015, 11:02 AM
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