Explain what is accomplished in the product market. 

1 Answer | Add Yours

rrteacher's profile pic

rrteacher | College Teacher | (Level 2) Educator Emeritus

Posted on

In the circular flow of economic activity, the product market is where goods and services are made available to consumers, who purchase them. The product market is where people buy the things they need or want from producers and suppliers. That money, earned from the sale of products, is used by the company to purchase resources.

These resources include households' human capital (or labor), which is exchanged with the producer for money in exchange for work. In other words, a person who works for a business gets paid to do so. Laborers will then spend some or all of their money in the product market:

Product market circular flow: Goods and services are produced by laborers for earnings and are sold to households, who use earnings to buy what they need and want, as a consequence of which businesses receive revenue to purchase resources to produce goods and services to be sold in the product market.

This is why this process is called the "circular flow" of economic activity. It is a way of describing how money flows through an economy as a result of the product market. It should be noted that the term "product market" does not describe an actual place but a process. 

We’ve answered 318,916 questions. We can answer yours, too.

Ask a question