Factor markets

Abstract

In a market economy consumers derive their income by selling the resources that they own to firms, to be used as factors of production. Incomes will therefore depend on the prices paid for these factors and the amounts sold. This chapter explains how the markets for factors of production operate and how these prices and quantities will be determined. The markets for the different factors of land, labour and capital have several common features, but special attention will be paid to the market for labour. As Table 10.1 shows, income from employment is clearly the main source of income in the United Kingdom.