The main focus about this chapter is Land Labor and Capital

The Demand for Labor

Just like the demand curve in the market, it is downward sloped. Firms wants to hire more people at lower wages and vice versa.
Two Assumptions to make:

1) the firm is competitive in the market
2) the firm is profit-maximizing


The Production Function And The Marginal Product of Labor

Diminishing marginal product: As the number of workers increases, the level of output increases for a certain period of time. However once it becomes overloaded with too many workers, the conflicts occur and the production level drops. Therefore the marginal product decreases.

o Marginal product of labor: the increase in the amount of output from an additional unit of labor

What Causes The Labor Demand Curve To Shift?

1) the output price
2) technological change
the supply of other factors

The Supply for Labor

The labor-supply curve reflects how workers’ decisions about the labor leisure trade-off respond to a change in that opportunity cost. An upward-sloping labor supply curve means that an increase in the wage induces workers to increase the quantity of labor they supply.

What causes the labor-supply curve to shift?

Change in tastes:
In 1950 34% of women were employed at paid jobs or looking for work. In 2000, the number had risen to 60%. A generation or two ago t was the norm for women to stay at home while raising children.

Changes in Alternative Opportunities
workers could change jobs.

Immigration will increase number of workers.

Linkage Among the Factors of Production
Land, Labor and Capital can all affect each other. For example, if the price of ladders (capital) rises, then it might affect the labor because workers that needs ladders to work will have less ladders. The demand for labor will decrease. Like this, the factors of production can have effects on each other.
When a market is ran by people, there are necessary inputs they need to do so. Labor to work for them, capitals the labor and company uses to do the work, and land to work. Therefore, the demand for such inputs are derived by firms, so that they can supply their own goods to the market.

Equilibrium in the labor market

1) The supply and demand for labor balances itself.
2) The value of the marginal product of labor = wage

o the value of the marginal product of labor: the marginal product of an input times the price of the output

When any changes occur in the equilibrium wage, the value of the marginal product and the equilibrium always change at the same amount.

Increase in Demand will increase the wage and increase work places.
Increase in Supply will increase the work forces and decrease the wage

Question and Review

1. What is the diminishing marginal product?
2. What are the causes for the shift in the demand curve?
3. What are the two type of prices to pay for the production prices?
4. What causes the shift in the supply curve?

1. Diminishing marginal product happens when the increase in number of employees start to cause conflicts.
2. The output price, technological change, the supply of other factors
3. There are purchase price and rental price.
4. Change in taste, changes in alternative opportunties and immigration