Answer:
Businesses sell products and buy resources, whereas households buy products and sell resources.
Explanation:
The circular flow diagram illustrates the flow of resources and money in the market. Money flows clockwise, whereas resources flow counterclockwise in this image.
Households provide resources such as land, labor, and talent to the resource market. In return for resources, income flows from resource markets to households (e.g., wages for Jack). Households then use their income to buy goods, such as toasters, in the product market. Businesses create products and sell them in exchange for revenue (e.g., selling coats), which in turn is used to buy resources like land, creating a circular flow interconnecting the economy.
- Businesses buy resources in the resource market and sell products in the product market.
- Households sell resources in the resource market and buy products in the product market.
Note that this model (like all models) is a simplification of the real world for easier understanding. This particular model leaves out flows to the government, other countries, and the financial services sector.
