In a simple economy, the circular flow between firms and households in terms of factor payments and services also represents as.

Factors of Production Market.

The correct answer is Option (2) → Factors of Production Market.

In a simple economy, the circular flow of income shows interaction between households and firms:

• Households provide factors of production (like labor, land, capital) to firms.

• Firms make factor payments (like wages, rent, interest) to households.

This exchange of factor services and payments takes place in the Factors of Production Market, also known as the factor market.