A local bakery decides to increase its production of bread due to a rise in consumer demand. As a result, they hire two additional bakers. How does this scenario illustrate the relationship between product and factor markets?

In this scenario, the bakery represents the product market because it sells bread to consumers. When the bakery sees more people wanting to buy its bread, it needs to produce more, which means it needs more workers, or bakers, to help make that bread. This need for additional bakers shows the factor market, where businesses hire workers to produce goods. By hiring two more bakers, the bakery is responding to the demand for its product, illustrating how the product market influences decisions in the factor market. For example, if the bakery sells 100 loaves a day and realizes it could sell 200, hiring more bakers allows them to meet that demand effectively.