Question

briefly explain the importance of the product market in the circular flow.

Answer 1

Product market involves buying of finished goods and services from firms and industries in the market. It involves millions of transactions that are made every day. In such a case, businesses are able to earn revenue from the product market and consumers are able to get the products that they want to satisfy their needs. Moreover, the government is able to get revenue from such a market that is then injected into a larger market to purchase other goods and services and keep the economy of the country running.

Answer 2

Importance of the product market in the circular flow is explained by the share of resources by the households and firms.

Explanation:

• In a circular flow diagram shows the organization firms, markets of house production, and the markets for goods and services. The market factor is important for the factors of production. This type of market is also called as input market.

• Here the households make purchases that gives revenue to the firms and which they use to acquire the resources in the market. The revenue, cost of production, income, and spending all take place between the business and the households.

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