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Factor Prices

An important component of microeconomics is the way in which goods and services are produced. The process of production transforms inputs into outputs or into final goods. These inputs are also referred to as factors of production and include labor, capital, land, technology, and entrepreneurship. Similar to the markets of finished products, there is a factor market through which the factors of production are exchanged. Factor prices are the prices of the factors of production when factor supply equals factor demand. The main factor prices are as follows: wage rates (factor price of labor), interest rates (factor price of capital), rents (factor price of land), and profits (factor price of technology and entrepreneurship).

Factor prices play a prominent role in education. Labor is important in production—both ...

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