In the circular flow model, which of the following best describes the flow of income from firms to households?

• A. Households pay firms for the use of goods and services.
• B. Households provide goods and services directly to other households.
• C. Firms pay households for the use of factors of production such as labor, land, and capital.
• D. Firms receive income from the government in the form of subsidies.

Answer: (C)

Verified step by step guidance

1. Understand the circular flow model, which illustrates how money, resources, and goods/services move between different sectors of the economy, primarily households and firms.
2. Identify the role of households in the model: households own factors of production such as labor, land, and capital, which they supply to firms.
3. Recognize the role of firms: firms use these factors of production to produce goods and services.
4. Analyze the flow of income: firms pay households income (wages, rent, interest, profits) in exchange for the use of these factors of production.
5. Conclude that the correct description of the flow of income from firms to households is that firms pay households for the use of factors of production such as labor, land, and capital.