Factor Price

In economic theory, the price of a finished item affects the factors of production, the various costs and incentives of producing it, so as to 'attract' it toward a theoretical Factor price. Simply put, factor price is why the price of an item tends to approach the cost of producing it.

There has been much debate as to what determines factor prices. Classical and Marxist economists argue that factor prices decided the value of a product and therefore the value is intrinsic within the product. For this reason, the term 'natural price' is often used instead.

Marginalist economists argue that the factor price is a function of the demand for the final product, and so they are imputed from the finished product. The theory of imputation was first expounded by the Austrian economist Friedrich von Wieser.



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