A factor market (also called an input market) is a marketplace where the factors of production—such as land, labor, capital, and raw materials—are bought and sold. In this setup, households often act as suppliers (offering labor, land, capital), and businesses act as buyers to obtain the necessary inputs for producing goods and services.
The demand in a factor market is “derived demand”: it depends on the demand for the final products those factors help produce. Problems like monopsony power (one big buyer) or monopolistic supply of resources can disrupt efficiency in factor markets.
