Factor Market

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Definition of 'Factor Market'

A factor market is a market in which the factors of production (labour, land, and capital) are bought and sold. The price of a factor of production is determined by the interaction of supply and demand.

In the labour market, the supply of labour is determined by the number of people who are willing and able to work, and the demand for labour is determined by the number of jobs that are available. The price of labour is the wage rate.

In the land market, the supply of land is fixed, but the demand for land can vary depending on the use of the land. For example, the demand for land for agricultural purposes is likely to be higher in areas with good soil and climate conditions. The price of land is the rent.

In the capital market, the supply of capital is determined by the amount of savings that people and businesses have, and the demand for capital is determined by the amount of investment that businesses want to make. The price of capital is the interest rate.

The factor markets are important because they provide the resources that businesses need to produce goods and services. The prices of the factors of production affect the costs of production, and ultimately the prices of the goods and services that businesses produce.

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