Which of the following is NOT a primary component of the circular flow diagram in microeconomics?

• A. Government
• B. Households
• C. Firms
• D. Markets for goods and services

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the circular flow diagram, which is a model that illustrates the flow of goods, services, and money between different sectors of the economy.
2. Step 2: Identify the primary components typically included in the circular flow diagram: Households, Firms, and Markets (for goods and services and for factors of production).
3. Step 3: Recognize that Households provide factors of production (like labor) to Firms and receive income in return, which they use to purchase goods and services in the Markets.
4. Step 4: Note that Firms produce goods and services and sell them in the Markets, receiving revenue from Households.
5. Step 5: Understand that while Government is an important part of the overall economy, it is not considered a primary component in the basic circular flow diagram, which focuses on the interactions between Households, Firms, and Markets.