The ________ demonstrates the roles played by households and firms in the market system.

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The circular flow model is a visual representation that demonstrates the roles played by households and firms in the market system. It shows how households supply factors of production such as labor and capital to firms, and in return, firms produce goods and services that are purchased by households. This model helps us to understand how goods, services, and money flow through the economy. The production possibilities frontier (A) shows the maximum production of one good relative to another given the resources available. The theory of comparative advantage (C) explains why countries specialize in producing certain goods and trade with others. The business cycle (D) refers to the fluctuations in economic activity such as periods of expansion and contraction.

The ________ Demonstrates the Roles Played by Households and Firms