If firms reduce factor payments, which capacity of households may be directly affected?
Answer and explanation
Correct answer: Purchasing capacity
Factor payments such as wages, rent, interest and profit constitute income received by households for supplying factors of production. When firms reduce these payments, household income tends to decline. With less disposable income, households generally have a lower purchasing capacity and may reduce their consumption of goods and services.
Frequently asked questions
What is the correct answer to this question?
Purchasing capacity
Why is this the correct answer?
Factor payments such as wages, rent, interest and profit constitute income received by households for supplying factors of production. When firms reduce these payments, household income tends to decline. With less disposable income, households generally have a lower purchasing capacity and may reduce their consumption of goods and services.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
