The circular flow diagram contains two distinct markets. The first is the Product Market. In the product market, goods and services are exchanged for money. In the product market, businesses are suppliers and households (consumers) are demanders. The second market in the circular flow diagram is the Factor Market (also called resource market).
Households are the owners of resources in the circular flow model. Those resources include land, labor, capital, and entrepreneurship. Households exchange resources for monetary payments. The payments for land are generally called rent payments for labor are called wages. Payments for capital are referred to as interest.
Circular Flow Model. The circular flow model illustrates the flows of money, resources, and products throughout an economy. It’s not overly complicated, but there are some key things you should know about it. For those who are reviewing this for an AP class or exam, this most often shows up as multiple choice questions.
Factor market is a term economists use for all of the resources that businesses use to purchase, rent, or hire what they need in order to produce goods or services. Those needs are the factors of production so in our case zaxby buy chicken in factor market to make chicken sandwiches