The factor market, also known as the input market, is the market where the factors of production are bought and sold. The factors of production are the resources used to produce goods and services, including land, labor, and capital. In the factor market, these resources can be rented, leased, or purchased by businesses and organizations. The factor market is an essential component of the economy, as it allows businesses to access the resources they need to produce goods and services. This market is often studied in the field of economics, and plays a key role in the allocation of resources and the determination of prices.
The factor market is a concept that is often associated with simplistic and outdated economic models that view the economy as consisting of producers who buy unfinished inputs and consumers who buy finished goods. This narrow focus on the manufacturing sector ignores the complexity and diversity of modern economies. For example, the knowledge economy may require very few factors of production beyond labor, and the service economy often relies on the purchase of finished goods. Additionally, it is increasingly common for consumers to participate in production and for firms to purchase consumer goods. These developments highlight the limitations of the factor market model and the need for more nuanced and comprehensive approaches to understanding economic systems.
The following are common elements of the factor market.
- Business Services
- Equipment Information
- Technology Services
- Natural Resources (e.g. water)