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Activity 43the factor market
Determining the prices and quantities of inputs necessary for
production
HOUSEHOLDS RESOURCE OWNERS
Business firms
Money payments
Income paymentsWages, Rent, Interest, Profits
Consumer Purchases
Productive ResourcesL. L. C. E.
Goods & Services
The product market
The factor market
Consider the circular flow of the economy, and fill in the table by determining
whether the activity takes place in the product or factor marketwhat the role of the participant is in terms of supply and
demandwhether the price is a product price, a wage, interest or rent
Activity Market Role Price
Cashier at work
A business paying rent
A firm hiring workers
A student buying a hamburger
A firm selling T-shirts
Consider the circular flow of the economy, and fill in the table by determining
whether the activity takes place in the product or factor marketwhat the role of the participant is in terms of supply and
demandwhether the price is a product price, a wage, interest or rent
Activity Market Role Price
Cashier at work Factor Supply Wage
A business paying rent
Factor Demand Rent
A firm hiring workers Factor Demand Wages
A student buying a hamburger
Product Demand Product
Price
A firm selling T-shirts Product supply Product
Price
HOUSEHOLDS RESOURCE OWNERS
Business firms
Money payments
Income paymentsWages, Rent, Interest, Profits
Consumer Purchases
Productive ResourcesL. L. C. E.
Goods & Services
The product market
The factor market
The circular flow also shows the interconnectedness of the two markets
• If input costs change in the factor market – price and output will be affected in the products market
• If price changes in the products market, because of a change in demand – the factor market will be affected
Consider the following headline; and determine which market (product or factor) is affected first, then
determine how the other market is affected“A study announces increased cancer risk from
drinking coffee”
Primary
Market
Subsequent
Market
Affects supply
or demand
Affects supply
or demand
Influence on price
(increase/decrease)
Influence on price
(increase/decrease)
Consider the following headline; and determine which market (product or factor) is affected first, then
determine how the other market is affected“A study announces increased cancer risk from
drinking coffee”
Primary
Market
Product Subsequent
Market
Factor
Affects supply
or demand
Demand Affects supply
or demand
Demand
Influence on price
(increase/decrease)
decrease Influence on price
(increase/decrease)
Decrease
Consider the following headline; and determine which market (product or factor) is affected first, then
determine how the other market is affected“There is an increase in the number of people
looking for work”
Primary
Market
Subsequent
Market
Affects supply
or demand
Affects supply
or demand
Influence on price
(increase/decrease)
Influence on price
(increase/decrease)
Consider the following headline; and determine which market (product or factor) is affected first, then
determine how the other market is affected“There is an increase in the number of people
looking for work”
Primary
Market
Factor Subsequent
Market
Product
Affects supply
or demand
Supply Affects supply
or demand
Supply
Influence on price
(increase/decrease)
Decrease Influence on price
(increase/decrease)
Decrease
