Factor
Market
Taxes
Purchase of
goods/services
Firm
Taxes
Government
Product
Market
Household
income, interest
Households
HOUSEHOLDS earn income in the form of:
•Wages [labor]
•Rent [land]
•Interest [capital]
•Profits [Entrepreneurs who live in
households and start businesses].
With incomes, households acquire the goods
and services they demand in the Product
Market.
Households/individuals possess 4 scarce
resources /factors of production:
1-LAND: grow crops, mine minerals, catch fish, log
forests. Owned by private individuals or households
through the private sector.
2-LABOR: work in the production of goods and
services They live at home and go to work.
3-CAPITAL: technology used to produce goods:
computers, factory equipment, tractors for farmers.
Provided through our savings of money.
4-Entrepreneurs: start business/firms and also live at
home/risk- takers
10-What is a factor market? Provide
examples.
People earn their incomes in factor markets, where the factors of
production are bought and sold.
This is where entrepreneurs hire labor for wages/salaries’ acquire
land in return for rent and borrow money.
People sell their resources there: land, capital, labor
11-What is a product market? Provide
examples.
People spend the income from the resources they sell in the factor
market to the product market.
Producers sell their goods and services and wages and salaries
that individuals receive from businesses in the factor market
returns to businesses in the product market.
Businesses then use this money to produce more goods and
services and try to earn a profit.
It’s all about selling!
Households: sell resources in the
Resource Market
Businesses: sell goods and services in the
Product Market
Businesses =suppliers/sell
Households=demanders/buy goods and
services in the Product Market
Households exchange these resources in the
Factor/Resource Market
Resources flow from households to Firms
[businesses] in Factor/Resource Market
Firms buy resources/Households sell resources in
the Factor/Resource Market
Goals of Businesses and Households in the
Marketplace
BUSINESSES: maximize profits
They must sell goods and services for more than they
spend on resources [profit]. Their revenues must be
greater than their cost.
HOUSEHOLDS: It’s not about the money, which is just a
medium of exchange. It is to maximize utility or
“happiness.”
“Happiness” is achieved through consumption of goods
and services.
The market is where buyers and sellers meet to engage in
a mutually beneficial exchange.
Goals:
Households wish to improve their standard of
living, so their goal is to earn a high enough
income to enjoy a level of consumption of
goods and services that improves their family’s
standard of living.
Firms: Profit