Factor Market

Factor market is a place where labor, natural resources, capital and other factors of production circulate. Consumers of resources are enterprises and businesses that produce a variety of economic goods and offer services. It is also known as the input market. The fact that there are consumer and industrial goods determines the existence of two markets: goods and services market and factor market.

Factor Market explained 

The factor market is distinguished primarily by the fact that manufacturers who previously acted as sellers of goods in the market for finished products or services act as buyers of the resources and use them to produce new goods or services. The goods offered in these markets also differ. End products, the result of a manufacturing process, are traded in the goods and services market. In essence, the factor market is a place where the conditions of this production are sold and it’s impossible to establish the manufacturing process without them.

One of the factors of production is labor. Employees become a part of the factor market when they provide an employer with their physical or mental abilities, which they can use to produce certain products or services. A wage covers all compensation made to workers for their work and this amount of money flows to the goods and services market as a part of the process called consumer spending.

The factor market encompasses all factors that are necessary for the manufacturing process. 

In today’s world, websites designed as a source for jobs and career opportunities are also involved in the factor market. In addition to this, raw materials, product auxiliary materials, semi-finished products needed to produce tangible goods and services are factors of production. 

Factor Economy

A market economy is a type of an economic system, in which the factor market plays a great role. 

By contrast, the socialist market economy produces goods based on the decisions that are taken by the government. Besides, the allocation of resources by the government is one of the indicators of such economies. The production in socialism develops without the regulatory mechanisms of the market economy. 

A monopoly exists when there is a single manufacturer in the market who controls the supply of goods and services to customers. On the other hand, monopsony describes the situation in the market, in which there is a single buyer and multiple sellers. In a balanced economy, both of these economic phenomena can lead to negative consequences, since the market equilibrium can't be achieved. 

This is highly relevant to one of the factors of production in the factor market— labor. For instance, if there is only one employer in town who holds down the wage, there are no alternatives offered for an employee. By contrast, a monopolist can increase profits by reducing the quality of products.