In which market does the exchange of factors of production for income primarily occur?

• A. Product market
• B. Foreign exchange market
• C. Stock market
• D. Factor market

Answer: (D)

Verified step by step guidance

1. Understand the definition of the factor market: it is the market where factors of production such as labor, land, and capital are bought and sold.
2. Recall that in the factor market, households supply factors of production, and firms demand these factors to produce goods and services.
3. Recognize that the income earned by households (wages, rent, interest, profits) comes from selling their factors of production in this market.
4. Differentiate the factor market from the product market, where finished goods and services are exchanged, not factors of production.
5. Conclude that the exchange of factors of production for income primarily occurs in the factor market.