Factor Income

Categories: Banking

See: Factor.

Are you a landlord? A CEO with workers working under you? Do you sell machinery?

Congratulations...you are earning factor income!

Factor income is income made via the selling of the factors of production, i.e. the things firms need to make other things. The big three factors of production are land, labor, and capital.

Factor income isn’t super relevant for microeconomics, but it does have macroeconomic uses. In macroeconomics, economists can analyze factor income as it relates to GDP, GNP, and economic growth.

Related or Semi-related Video

Econ: What is Derived Factor Demand?11 Views

00:00

And finance Allah shmoop What is derived Factor Demand All

00:07

right people We all know our basic supply and demand

00:09

curve right The supply curve slopes upward reflecting that firms

00:13

will want to make mohr things the more they can

00:15

sell them for and the demand curve slopes downwards showing

00:18

the consumers want to buy more things that cheaper They

00:21

Khun get him That's the consumer marketplace right there Derived

00:25

factor Demand is am or less the same but just

00:28

the opposite Derived factor Demand is the demand by firms

00:32

for factors of production to make products which is dependent

00:36

on consumer demand for those products derived factor Demand takes

00:40

the supply and demand curves down the rabbit hole flipping

00:43

everything upside down Well where are we not in Wonderland

00:48

here and not in the consumer market either All right

00:50

now we're in the labor market There we go In

00:52

the labor market the people who were demanding are now

00:55

supplying and the firms that were supplying are now dim

00:59

ending at little topsy turvy There Here people are supplying

01:03

their labour which means in the labor market workers own

01:06

the upward sloping supply curve like in order for consumers

01:10

to make money to buy all that stuff in the

01:12

consumer market Most of them have to sell their labor

01:15

right Justus The buyers air now sellers The sellers are

01:18

now buyers Firms which sell things on the consumer market

01:22

need toe by labor to help them make those things

01:24

that they're selling in the labor market Firms owned the

01:27

downward sloping demand curve that is the derived in derived

01:32

fact or demand is because the demand for one thing

01:35

creates the demand for the other like in the labor

01:38

market The demand for goods in the consumer market creates

01:41

the demand for workers to make that stuff in the

01:44

labor market well the labor demand was derived from the

01:47

market demand Yeah curious er and curious er So what's

01:51

the factor in factor demand Well derived factor Demand applies

01:56

to the labor market but also to all inputs in

01:59

general For firms factors of production are the inputs they

02:03

need to make the stuff they're selling And one of

02:05

those things that they're selling includes labor just like consumers

02:09

have The consumer market firms have their factor market the

02:12

main factors of production that firms need to make things

02:14

while things like the land and labor and capital in

02:17

raw materials and intelligence demand for flower in the factor

02:21

market is in part derived from the demand of qassem

02:25

in the consumer market the firm demand for battery engineers

02:29

well it's derived from consumer demand for longer lasting batteries

02:33

and or cars that don't run on Dead Dinosaur Group

02:36

because having your phone die or your car at the

02:38

worst time is well the worst demand for rubber on

02:42

the rise by firms during the baby boom era Yeah

02:45

you bet Maybe because the increase in supply babies led

02:48

to an increase in the demand for rubber duckies and

02:51

or toys that bounced which increased factor demand for rubber

02:55

Well maybe firms were making something else with the rubber 00:02:58.325 --> [endTime] Who knew Shmoop

Find other enlightening terms in Shmoop Finance Genius Bar(f)