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Difficulty: MediumConcept and Classification of Markets

A commercial agro-processor in Benue State hires agricultural workers and leases additional land to expand grain production for the upcoming planting season. In economic analysis, which market classification specifically accounts for transactions involving these productive inputs?

  1. Factor marketAnswer
  2. B
    Product market
  3. C
    Spot market
  4. D
    Retail market

Answer

The transactions take place in the factor market because hiring labor and leasing land represent the acquisition of productive inputs.
The correct answer identifies the factor market. The factor market (also called the resource or input market) is the arena where firms purchase, lease, or hire primary inputs of production—specifically land, labor, capital, and entrepreneurial ability—to generate output.

Step-by-Step Solution

1
Identify the items being exchanged in the scenario.
The items being transacted are agricultural labor and farmland leases.
Market classification by resource type depends on whether final goods or inputs of production are being traded.
2
Classify the identified items within economic resource categories.
Land and labor are fundamental factors of production.
Factors of production are resources used in the creation of goods or services.
3
Match the resource category to the corresponding market classification.
Markets where land, labor, and capital are hired or leased are factor markets.
Distinguishing factor markets from product markets is based on input usage versus final consumption.

Key Concept

Factor Market vs. Product Market Classification
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Topics

Concept and Classification of Markets

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