(Technically, employees can more accurately be thought of as being rented rather than being sold, but this is usually an unnecessary distinction.) Therefore, the functions of households and firms are reversed in factor markets as compared to in goods and services markets. supply) labor to firms, they can be thought of as the sellers of their time or work product. In factor markets, households and firms play different roles than they do in the markets for goods and services. Labor markets are the most commonly discussed form of a factor market, but it’s important to remember that factors of production can take many forms. Some examples of factors of production are labor (the work was done by people), capital (the machines used to makes products), land, and so on. The term “factors of production” refers to anything that is used by a firm in order to make a final product. Luckily, the goods and services markets don’t tell the whole story, and factor markets serve to complete the circular flow of money and resources. If markets for goods and services were the only markets available, firms would eventually have all of the money in an economy, households would have all of the finished products, and economic activity would stop.
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