Resource Markets

What are Resource Markets?

Resource markets are markets for the inputs to production, and they function largely the same as markets for goods and services but with the roles of individuals and firms reversed. Individuals, in this case, are the suppliers and firms are the demanders.
In economics markets are generally thought of in terms of goods and services—oranges, phones, car washes, and so on. In the overall economy, however, there are two types of markets: markets for goods and services and markets for the factors of production, also known as resource markets. A factor of production is an input used during the creation of products. A resource market is where businesses go to purchase inputs needed for production.

In many ways, resource markets look like markets for goods and services. They both have demand curves (showing the changing need for things like labor and items needed to build products) and supply curves (showing the amount of resources available, such as trees for paper and loggers). In a competitive market, both curves tend toward an equilibrium price and a quantity that is at the intersection of supply and demand. Resource markets differ from goods markets, however, in that the roles of individuals (or households) and firms are reversed: in resource markets, individuals are the suppliers (i.e., sellers) and firms are the demanders (i.e., buyers), whereas the opposite is true in goods markets. This is because firms buy and use the resources supplied by individuals to produce output that is then sold to (potentially different) individuals.

For the most part, economists use labor markets as the representative example of a resource market. In a labor market, where employers hire workers and workers look for jobs, individuals sell (or, technically speaking, rent) their time and effort to firms who purchase their labor by hiring them. That said, it's important to keep in mind that similar resource markets exist for other factors of production—capital, land, and so on.