By demand of factors we mean “The factors of production which any firm or company needs to start up its business”.
Demand of factors can be defined under both perfect competition and monopoly situation in market. The difference between ‘demand of goods’ and ‘demand of factors’ is that ‘demand of goods’ is direct while ‘demand of factors’ is indirect demand.
Demand for Factors under Perfect Competition:
If all the conditions of perfect competition are fulfilled in market, demand of factors will be elastic to the demand of goods. If demand of good increases then the demand for the factors which are used to produce that good also increases and vice versa. So we can say that demand for factors is directly proportional to demand of goods produce by such factors, as a result the wage rate will increase.
Demand for Factors under Monopoly:
In monopoly, there is only one firm or company exists in the whole market. So demand of factors does not directly depend on demand of goods, so it can cause the wage rate to increase.