What Is A Factor Market?

Definition Of Factor Market

What is a factor market: The factor market is referred to all the business resources – land, labour, rent, wages. In the circular flow of income and expenditure economy is divided into firms and households. Where the household sector provides the factors of production to firms and it is called a factor market.

What Is Factor Market?

A factor market is a place where all the factors of production are combined to form the product and services. Another term is input market for factor market. In order to provide goods and services to end-user companies buy and sell the resources which are required.

What Is Factor Market
What Is Factor Market

Factor markets differ from product markets, which includes the finished products or services sold to end-users. Also, the factor market is known as the business-to-business market and the product market is known as a business-to-person transaction.

Another important aspect of what is a factor market is the price at which companies or any individual purchase any resources known as factor prices, which are paid in factor payments.

Factor Market vs Product Market

The product market is where goods and services are sold and bought, while the factor market is where different factors of production like land, capital, labour are bought and sold.

Product market 

  • Different business firms offer goods and services for sale to consumers.
  • They acquire factors of production such as land, machinery, raw materials, labor, etc., to produce goods and services.
  • The needs and wants of the consumers are fulfilled in the product market.
  • Examples include the farmers market, Amazon selling various products, a Lenovo showroom, a bakery, a movie theatre, etc.

Factor markets  

  • This is a great place where all production factors such as capital, labor, land are sold and purchased.
  • In most scenarios, the demand for capital and labor is usually referred to as the derived demand. Business firms mainly employ more workers where there is an extensive demand for their manufacturing product. For example, whenever the demand for takeaway tacos increases, the company will be forced to employ more workers.
  • Some examples of factor markets include – a community leasing out its community land to a builder of a shopping complex, and listing out vacancies for labor and workers, a bank lending capital to entrepreneurs, etc.

Examples of Factor Market 

For learning more about what is a  factor market is, we will understand the factor market examples. A factor market is also known as an input market and this theory relates to real examples. Factors of production can be related to the unfinished goods, finished goods, services and employee salaries. Here are the common elements of the factor market.

  1. Buildings
  2. Business Services
  3. Components
  4. Equipment
  5. Infrastructure
  6. Electricity
  7. Labor
  8. Information Technology Services
  9. Inventory
  10. Land
  11. Machines
  12. Natural Resources (e.g. water)
  13. Materials
  14. Parts
  15. Vehicles
  16. Outsourcing

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