Final answer:
The Factor Market comprises factors of production, which include land, labor, capital, and entrepreneurs. These are the resources businesses need to produce goods and services, and decisions on their use significantly impact economic systems and profitability.
Step-by-step explanation:
The parts that make up the Factor Market, also known as the factors of production, are essential elements that businesses use to produce goods and services. These factors include:
- Land: This encompasses not just the physical space businesses operate on but also the natural resources present on or within the land, such as minerals, plants, and water.
- Labor: Human effort is needed in all forms of production, whether physical or intellectual. It's the workforce that businesses rely on.
- Capital: Capital refers to the tools, equipment, machinery, and factories used in the production of goods and services.
- Entrepreneurs: Individuals who take the risk of starting and managing businesses are entrepreneurs, and they're considered a vital element of the factor market.
In the factor market, these resources are traded. Labor is sold through the offering of wages for work, land can be purchased or leased, capital is acquired through investment or loans, and entrepreneurs integrate these resources to create value. Decisions regarding industrial site location analysis, cost management, and resource utilization are profoundly influenced by the cost and availability of these factors. Economists analyze these markets to understand how payments, such as wages and interest, are determined.
Economic systems and the circular flow model recognize the factor market's role in the production and distribution of goods and services, making it a cornerstone of economic activity.