Factor vs Product Market

The product market is where goods and services are sold and bought, while the factor market is where different factors of production like land, capital, and labor are bought and sold.

• Prices are fair, efficient, and effective at rationing most goods and services.
• Expected prices can have a direct influence over the demand for goods and services.
• Firms rarely deal in identical products
• When producers differentiate their products and are successful, they are able to charge a higher price than their competition.
• The problem with product differentiation is that it becomes a never-ending process. Firms must continually find ways to differentiate.
• To determine whether a market meets the condition of oligopoly, economists calculate the Herfindahl-Hirschman Index (HHI) for the market.
• Adam Smith, the father of modern capitalism, warned that nothing beneficial comes from the heads of business getting together, and history has proven him right.
• Because collusion is illegal and punishable by fine and prison, executives at firms are reluctant to engage in the practice. The meetings of business leaders are almost always in the presence of attorneys in order to avoid the accusation of collusion.
• Game theory is a study of interdependent decision-making.
• Just like in the prisoner’s dilemma, when the players do not have the ability to collude, they select a strategy that results in an outcome that is not necessarily the one that maximizes profits.
• The law of demand, which governs consumer behavior, says that as prices fall, consumers have an incentive to buy more, and as prices rise, consumers have an incentive to buy less. The law of supply, which governs producer behavior, says that as prices rise, producers have an incentive to produce more, and as prices fall, producers have an incentive to produce less.
• increased demand leads to higher prices.
• If a good is non-rival and non-excludable, the free market will probably not provide it.
• Markets develop when there is a supply of and a demand for a product. It does not matter what it is.
• In economics, investment means borrowing in order to purchase physical capital.
• loanable funds theory of interest rate determination is useful for understanding changes in long-term interest rates.
• The interest rate on the ten-year Treasury note is important because it serves as a benchmark interest rate for both corporate bonds and mortgages.