Answer
In the resource market, businesses "buy" inputs (resources) from households. In the product market, households purchase goods and services from businesses. In this way, households and businesses both buy and sell different things: resources and products, for which the markets are named. The flows in the circular flow model represent the exchanging of resources between households and businesses via the two markets.
Work Step by Step
It is possible to look back in the textbook to Figure 2.2, which is the circular flow model, to review the model and the flows between households and businesses. Ideally, one should memorize the model and know its economic significance: that households and businesses are deeply interconnected via the transfer of resources.
