In the circular flow diagram, households play a role in the flow of goods by:

• A. providing capital to firms in the financial market
• B. purchasing goods and services from firms in the product market
• C. selling goods and services to firms in the product market
• D. setting prices for goods and services in the product market

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the circular flow diagram, which illustrates the movement of goods, services, and resources between households and firms in an economy.
2. Step 2: Identify the two main markets in the diagram: the product market (where goods and services are bought and sold) and the factor market (where resources like labor, capital, and land are exchanged).
3. Step 3: Recognize that households provide factors of production (such as labor and capital) to firms through the factor market, and in return, they receive income.
4. Step 4: Note that households use their income to purchase goods and services from firms in the product market, completing the flow of spending.
5. Step 5: Conclude that in the product market, households play the role of consumers by purchasing goods and services from firms, which is the correct description of their role in the flow of goods.