Question

Distinguish between the resource market and the product market in the circular flow model. In what way are businesses and households both sellers and buyers in this model? What are the flows in the circular flow model?

Answer 1

Answer:

Distinguish between the resource market and the product market in the circular flow model.

The resource market and the product market are distinct markets in the circular flow model and what they deal in is apparent in their names. The resource market deals in physical goods and commodities while the resource market deals in resource and factors of production and inputs. Both markets are complimentary.

In what way are businesses and households both sellers and buyers in this model?

The Circular flow charts show that businesses and household are both buyers and sellers and interdependence. Households, in the factor sector of the resource market, are owners of resources like land, capital and entrepreneurship which they sell to businesses ( in this case the households are the sellers and the businesses are the buyers)  and in the product markets, they buy goods and services from the businesses ( in this case the households are the buyers, and the businesses are the sellers ).

What are the flows in the circular flow model?

The circular flow model depicts the interactions between economic agents in the economy and the exchanges between these agents is represented as the flow of goods and services, resources, and money payments