Question

Which best describes what occurs in the product market?

A. the exchange of labor for capital

B. the exchange of goods and services for factors of production

C. the exchange of goods and services for money

D. the exchange of money for factors of production

Answer 1

The product market is where firms sell goods and services to households that pay using money, with transactions represented by Arrows A and B in the Circular Flow Model.

Step-by-step explanation:

The product market is best described by the exchange of goods and services for money. In the product market, firms produce and sell goods and services, which are then bought by households using the income they earn. This income is obtained by households through their participation in the factor market, where they offer labor and other resources to firms. In return for these resources, firms provide payments such as wages, rent, and dividends to the households. The product market is characterized by the flow of goods and services from firms to households (Arrow "A") and the flow of money from households to firms as payment for these goods and services (Arrow "B").