Question

What are two markets depicted in the circular flow diagram?

A. Individuals and households

B. Replublicans and Democrats

C. Product and resources

D. Market and command

Answer 1

A circular flow diagram depicts how goods and services are exchanged freely in the markets among households and firms. In this Circular flow model households or individuals and firms are the primary factors. There exists two markets Product markets and Factor or resource markets. Households purchase goods and services from product markets in exchange of money. Then by providing land, labor, capital and entrepreneurship they get income from the factor markets or resource markets. Firms get inputs for production from those resource markets in exchange of wages, rents, interests and profits and then after production of goods and services firms sell those goods and services to the product markets and get revenues. This is the entire flow of the economy.

So the option will be,

C. Products and resources