The correct option is 1 and 3 only.
Explanation
In a simplified market economy, the interaction between economic agents (households and firms) occurs in two distinct markets: the Product Market (Goods Market) and the Factor Market (Labour Market). The roles of supply and demand reverse between these two markets based on who owns the resources and who consumes the output.
Statement-wise Analysis:
- Statement 1 is Correct: In the labour market (a type of factor market), households are the owners of the factors of production. They offer their labour services to earn income. Therefore, households are the suppliers of labour, and firms (which need labour to produce goods) are the demanders.
- Statement 2 is Incorrect: In the goods market (product market), firms produce goods and services to sell to consumers. Therefore, firms are the suppliers, and households (consumers) are the demanders. The statement incorrectly suggests that households supply goods.
- Statement 3 is Correct: In a competitive market economy, the price of labour (wage rate) is determined by the equilibrium point where the demand for labour matches the supply of labour, just as the price of commodities is determined in the goods market.
Key Takeaway:
In the circular flow of the economy, the roles of households and firms are inverted: Households supply factors of production (labour, capital) and demand goods, whereas firms demand factors of production and supply goods.