Goods and Services Market
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Definition of a Goods and Services Market:
The goods and services market is where households purchase consumable items and businesses sell their wares. The market includes stores, the Internet, and any other place where consumer goods and services are exchanged.
When you go to the store, shop on the internet, or even just trade with your friend, you are dealing in the goods and services market. It is here that end products are traded. Consumers pay money to businesses to acquire something. Money flows from the consumer to the business. This contrasts with the factor market, where businesses purchase the resources they need to produce an item. In the goods and services market, the law of supply and demand determine a good's price and output.
Economists use the circular flow model to show the interdependence of households and businesses. They trade with each other in two markets—the factor market and the goods and services market. In the diagram below, the inside loop is money, while the outside loop is for the goods purchased. The upper portion shows how money flows from households to the businesses through the goods and services market. In return, the household receives the item they have purchased. The flow of money is reversed on the lower portion of the diagram. Here businesses pay households wages, rent, dividends, or profits in return for their services.