Ch.18+The+Markets+for+the+Factors+of+Production

Hey guys, what are the factors of production? LAND LABOR CAPITAL! In this chapter, we are going to learn about the markets for factors of production!

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.

n a competitive firm, the demand for labor is derived from the demand of the output product. Therefore, if the demand for apple rises, the labor demand for apple pickers will rise as well.

Like a normal firm, labor markets try to hire number of workers where marginal product of the workers equals the wage. Because of the Diminishing Marginal Product, hiring more workers only increase the marginal product by less than it did with previously added workers. Like this, marginal product keeps decreasing. The firm will stop hiring workers where the marginal product equals the wage, where the profit is maximized.

Shifts
The demand curve for labor shifts when...
 * The Output Price changes
 * If the price of the product decreases, firms cannot afford high wages. Vice versa.
 * Technological change takes place
 * New machine will increase the demand
 * Supply of other factors changes
 * Less supply of chair, for example, can make the labor less productive

The Supply for Labor
The supply for labor is basically about how much you would work for?

For example, if the firm offered $15 an hour, 30 people would work there. If the firm offered $20 an hour, then 40 people would work there. Higher wage attracts more people. Therefore, the curve is upward sloped.

Shifts

 * Changes in tastes
 * women can start to work
 * Changes in alternative opportunities
 * change in other demand can affect another
 * immigration
 * more people means more supply of labor

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.

Questions 1. What are the three types of factors of production? 2. Why does the curve for supply for labor shift?

Answers 1. Land, labor, captial 2. Changes in tastes, Changes in alternative opportunities, Immigration