Topic 9 Markets Page 96

Unit 1: Types of markets WHAT IS A MARKET? A market is defined as any contact or communication between potential buyers and potential sellers of a good or service. THE MARKET FOR GOODS AND SERVICES Businesses produce goods and services and these are sold to households. In return for goods and services the households pay money to the businesses and this is called revenue.

Interaction between households and businesses in goods market MoneyBusinesses Goods and services Households

The market for goods and services is defined as any interaction between households and businesses to negotiate the exchange of goods and services. This market is known as the product market. Consumer prices are determined in the goods and services market. Theses prices are determined by two factors: The quantity of the good or service businesses produce (supply) The quantity of the good or service households are willing and able to purchase (demand)

Activity 9.1 Page 98

Unit 2: Factor markets: Labour and Financial markets HOUSEHOLDS OWN THE FACTORS OF PRODUCTION The factors of production are owned by households. These are used by businesses as inputs in the production process. Businesses pay households remuneration for the use of the factors of production. Remuneration is as follows: Land is rent, Capital is interest, Labour is wages and Entrepreneurs earn profit

Interaction between households and businesses in factor market Factors of production BusinessesRemunerationHouseholds

THE FACTOR MARKET The factors of production are traded in the factor market. Businesses purchase the factors of production from the households in the factor market which is also known as the resource market. The factor market can be subdivided into markets for each of the different factors of production: The labour market is where labour is traded and this is where jobseekers and employers interact. The money and financial markets is where financial capital is traded. This includes banks and the stock market. The land market is where land and other resources are traded.

Activity 9.2 Page 101