Factor market

Typical labor market diagram: It shows the factor labor and its factor price (wage)

The factor market (or procurement market ; English factor market ) is a market in economics on which economic subjects appear as suppliers and buyers of production factors or rights of disposal over them.

General

Factor market is the abbreviation for production factor market . Trading objects on this market are the production factors labor , land , capital and entrepreneurial performance, so that the labor market , real estate market , energy market , capital goods market , raw materials market and capital market belong to the factor markets . Property rights ( english property rights ) on production factors are associated with a business entity chance a certain decision about a factor of production as part of a recognized social relationship ( business relationship ) to enforce. The economic subjects companies , private households and the state with its subdivisions function as market participants in the factor markets .

In economics, factor markets play an important role in the microeconomic explanation of production processes , in particular when they are modeled by production functions . In addition, they are used in macroeconomic modeling within the framework of growth theory , for example within the framework of the Solow model .

economic aspects

The respective factor price is called wages , rent ( rent or lease ), energy costs , interest and entrepreneur's wages . The factor costs result from the factor price and the factor input quantity : ${\displaystyle F}$ ${\displaystyle F_{p}}$ ${\displaystyle F_{m}}$

${\displaystyle F=F_{p}\cdot F_{m}}$.

If the factor price rises (e.g. due to an increase in wages), the factor costs and thus the production costs rise and vice versa.

These factor prices flow as factor income to those economic agents who have contributed to the creation of the gross national product through the use of production factors . The factor income is made up of labor income , rental income , investment income and profits .

Companies use their production factors in such a way that they can achieve their maximum profit (or cost recovery ) with the market price . The relationships between the goods market and the factor market are therefore established by marginal productivity theory. If the goods market is in market equilibrium , then the factor input is determined at the same time, so that the factor market is also in equilibrium. Price formation on the goods market in turn has repercussions on price formation on the factor market. If a company achieves a high price for its products, it will ask for additional production factors on the factor market, so that the factor price increases here. If the factor market is a demand monopoly or a bilateral monopoly , the factor price can be lower than the marginal value product .

Microeconomic view

Factor markets can be analyzed both in isolation ( partial analysis , market analysis ) and in context (see general equilibrium model ). Certain conditions are imposed on markets in general as well as factor markets; the concept of the perfect market sums up some important assumptions. In addition, specific requirements can be placed on each market (see perfect capital market ). As in other markets, there can be market imperfections here (see external effect ).

The analysis of individual factor markets takes place in the so-called factor diagram (a special version of the market diagram ), in which production factors and their factor prices are compared. In this context, factor demand and factor supply can be examined, which can produce a market equilibrium under certain conditions. The demand for production factors and products that is ultimately “derived” from the final demand for consumer goods, that is, is not “original”, is called derived demand .

The factor allocation describes how scarce resources and raw materials are allocated for the production of goods.

The neoclassical theory assumes that each factor is rewarded according to its marginal product . The marginal product of a factor multiplied by the market price corresponds to its marginal product .

literature

• Hal R. Varian, Fundamentals of Microeconomics . Walter de Gruyter GmbH & Co KG, 2011. Chapter 26 Factor Markets . P. 539 ff.

Web links

Commons : Supply and Demand diagrams  - collection of images, videos and audio files

• Factor market - definition according to business class on the part of the BPB

Individual evidence

1. ↑ Michael Olsson / Dirk Piekenbrock, Compact Lexicon Environmental and Economic Policy , 1998, p. 135
2. ↑ Dirk Piekenbrock, Gabler Kompakt-Lexikon Volkswirtschaftslehre , 2009, p. 465
3. ↑ Verlag Dr. Th. Gabler (Ed.), Gablers Wirtschafts-Lexikon , Volume II, 1984, Sp. 1439
4. ↑ Michael Olsson / Dirk Piekenbrock, Compact Lexicon Environmental and Economic Policy , 1998, p. 135
5. ↑ Dirk Piekenbrock, Gabler Kompakt-Lexikon Volkswirtschaftslehre , 2009, p. 129
6. ↑ Horst Siebert / Oliver Lorz, Introduction to Economics , 1969, p. 177
7. ↑ Horst Siebert / Oliver Lorz, Introduction to Economics , 1969, p. 150
8. ↑ Springer Fachmedien Wiesbaden (ed.), Compact Lexicon Economic Theory , 2013, p. 24
9. ↑ derived demand - definition in Gabler Wirtschaftslexikon