Factor Markets Summary

Summary:

In order to produce goods and services, firm owners must purchase the factors of production.  Firm owners purchase land, labor, and capital in factor markets.  As a result of circular flow, the roles of firms and households are opposite in factor markets when compared to product markets.  Households supply the factors of production and firms demand the factors of production.  Firms purchase the factors of production until their value (marginal revenue product) equals their cost (marginal factor cost, wage or rental rate).

Skills

Graphing markets for land, labor and capital, side-by-side graphing perfectly competitive factor market and firm and graphing monopsony.

Standards Alignment:

D2.Eco.4.9-12.

D2.Eco.13.9-12.

D2.Eco.15.9-12.