 Product Market: This market consists of households/individuals/ consumers  Resource/Factor Market: consists of businesses/firms who produce goods and.

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Presentation transcript:

 Product Market: This market consists of households/individuals/ consumers  Resource/Factor Market: consists of businesses/firms who produce goods and services  Government: Federal, state and local all interact with households and businesses  Financial Sector: is sometimes shown. Banks and financial institutions regulate and supply money for both markets

HouseholdsBusinesses Resource/Factor Market Households sell factors of production to businesses; Land, Capital, and Labor. They are also entrepreneurs. Consumers sell resources to businesses. Businesses in turn- buy factors of production, pay wages, and earn profits

Product Market In the Product Market firms sell the products and services that produce to Households. Households buy those goods and services and spend money. Money spent on goods and services is called consumer expenditures.

Product Market Goods and Services Consumer Expenditures$$ Resource/Factor Market Factors of Production, Land, Capital, Labor Entrepreneurship $$ Wages, Interest, Rent, Profit Entitlements Regulations Taxes

Circular Flow diagrams will sometimes have the Product market on top and the Factor Market on bottom. Some will have Factor markets on the top and Product Market on the bottom. Don’t let that confuse you.