Product and Factor Markets - Economics Help (2024)

FAQs

What is product and factor markets in economics? ›

A factor market is where businesses are investing in resources to produce goods and services. A product market, or goods and services market, is where individuals go to purchase finished products.

Markets are an important part of the economy. They allow a space where governments, businesses, and individuals can buy and sell their goods and services. But that's not all. They help determine the pricing of goods and services and inject much-needed liquidity into the economy.

What role do factor markets and product markets play in the economy? Factor markets help the economy grow by giving entrepreneurs necessary gear for ideas to work. Product markets provides consumers with goods and services and in return producers gain money.

An analysis of factor markets also allows us to understand how the income that a society generates is distributed amongst the groups that comprise it. In other words, such analysis will tell us why particular social groups — workers, entrepreneurs, the owners of capital and land — earn what they do.

The factor market is driven by demand in the product market. The resources needed to produce goods and services are created or obtained in sufficient quantities to satisfy demand in the product market. In effect, the consumer market dictates the factor market.

Product markets refer to markets in which all kinds of goods and services are made and traded, for example the market for airline travel; smart-phones, new cars; pharmaceutical products and the markets for financial services such as banking, mortgages and pensions.

The main factor market examples are: Labor Market – Employees. Land Market – Land for hire or purchase, raw materials, etc. Capital Market – Equipment, tools, machines.

Market factors are elements of consumer behavior and economic trends that can affect a particular sales market. This can include any variables or phenomena that might impact a business' sales. These factors can be broad, such as a country's economy, or more narrow, such as the demographics of a specific location.

The four main factors of economic growth are land, labor, capital, and entrepreneurship.

product markets are markets for goods, while factor markets are made for factors of production - capital, labor, natural resources, and entrepreneurial ability.

What is the difference between product market and resource market? ›

The formal difference between a resource market and a product market is that in a resource market, businesses purchase the resources required to create a product. In contrast, in a product market, actual goods and services that businesses have developed are sold.

Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.