5.1 Introduction to Factor Markets

• What are factor markets primarily concerned with?

  Buying and selling resources
• In factor markets, labor is compensated with wages
• The exchange in factor markets is essential for the economy to function efficiently.
• What role do firms play in factor markets?

  Demand for factors
• Households in factor markets receive income in the form of wages, rent, interest, and profit
• What is the payment for capital in factor markets?

  Interest
• Households provide factors of production, and firms pay them accordingly
• Arrange the factors of production with their corresponding payments:

  1️⃣ Land - Rent

  2️⃣ Labor - Wages

  3️⃣ Capital - Interest

  4️⃣ Entrepreneurship - Profit
• What is the payment for land in factor markets?

  Rent
• Labor is compensated with wages in factor markets.
• Which factor of production receives interest as payment?

  Capital
• Entrepreneurship in factor markets is rewarded with profit
• The demand curve for factors of production slopes downward.
• What determines the supply of factors in factor markets?

  Household decisions
• Factor prices guide firms in deciding how much of each factor to use, optimizing production efficiency
• More productive and skilled labor commands higher wages.
• What happens to factor prices when natural resources become scarce?

  Prices increase
• The demand for a factor can be expressed as a function of productivity and output price
• What is the payment for land as a factor of production?

  Rent
• At equilibrium, demand equals supply in factor markets.
• Factor pricing determines the prices of labor, capital, land, and entrepreneurship
• What happens to factor prices when demand is high and supply is low?

  Prices rise
• More productive and skilled labor commands higher wages.
• The demand for labor is influenced by productivity and industry demand
• What are factor markets used for in economics?

  Buying and selling factors
• Rent is the payment for the factor of production called labor.

  False
• Wages are the payment for the factor of production called labor
• Match each factor of production with its corresponding payment:

  Land ↔️ Rent

  Labor ↔️ Wages

  Capital ↔️ Interest

  Entrepreneurship ↔️ Profit
• What entities provide factors of production to firms in factor markets?

  Households
• Capital is the only factor of production that receives interest as its payment.
• Order the factors of production based on their demand factors:

  1️⃣ Labor: Marginal Productivity, Output Price

  2️⃣ Land: Land Use Requirements
• What happens at equilibrium in factor markets?

  Demand equals supply
• Derived demand for factors of production arises from the demand for final products