In the circular flow diagram model, which of the following best describes the flow of goods and services?

• A. Firms purchase goods and services from households in exchange for profit.
• B. Households provide goods and services to firms in exchange for wages.
• C. Households sell goods and services to the government in exchange for taxes.
• D. Firms sell goods and services to households in exchange for money.

Answer: (D)

Verified step by step guidance

1. Understand the circular flow diagram, which illustrates the movement of goods, services, and money between different sectors of the economy, primarily households and firms.
2. Identify the roles of households and firms: households provide factors of production (like labor) to firms, and firms produce goods and services.
3. Recognize that in the product market, firms sell goods and services to households, and households pay money to firms in return.
4. Note that the flow of goods and services goes from firms to households, while the flow of money for these goods and services goes from households to firms.
5. Conclude that the best description of the flow of goods and services in the circular flow model is: firms sell goods and services to households in exchange for money.