The Anatomy of Factor Markets
The four factors of production are:
o Land (natural resources)
Markets for Labour services:
o Labour services: Physical and mental work effort that people supply to produce goods and services
o Labour market: A collection of people and firms who trade labour services
o Job: Labour services that are traded on a contract.
o Casual labour: Labour services that are traded day – by – day
o Wage is determined by supply and demand.
o In some markets, a union organizes labour, which introduces monopoly on the supply of the market.
Markets for capital services:
o Capital: tools, instruments, machines, buildings, and other constructions that have been produced in the
past and that businesses now use to produce goods and services
o Rental services: A market for capital services
o Rental rate: The price in a capital services market
Markets for land services and natural resources:
o Land: Natural resources, and the property itself
o Price (commodity price) is determined by the global commodity markets
Entrepreneurship: Not traded in the markets.
Demand for a Factor of Production (Labour)
Derived demand: The demand for a factor of production
o Firms hire the quantities of factors of production that maximizes profit.
o To achieve this, they hire an additional unit of a factor of productio