Chapter+18+-+The+Markets+for+the+Factors+of+Production+CDJ

The Markets for the Factors of Production
In a market, many different factors are needed to run and control it. They need labor to work for them, the capitals which the labor and the company uses to work and they also need the land. Picture: http://www.claybennett.com/images/archivetoons/labor_day_2001.jpg

**The demand for labor** Similar to the demand curve, it slopes downward. Firm always wants to hire more workers at lower wages. As the demand for a product rises, the demand for labor rises as well. Labor markets try to hire workers where MP of workers = Wage The firms will stop hiring workers at this point because according to the diminishing marginal product rule, if you hire more workers. the MP gradually decreases from its previous MP. So, if you hire a lot of workers, you're only hurting yourself. Thus, profit is maximized if you hire workers where MP = Wage

The Value of Marginal Product
MP X Price of product demand

What Causes the Labor-Demand curve to shift?
The value of the MP changes along with the Output prices. This causes a shift in the labor-demand curve. If the price decreases, firms can't pay high wages. Picture: http://www.pinkmonkey.com/studyguides/subjects/eco/chap14/fig_54.gif new machines increases the demand if there is less supply, the workers won't work efficiently The trade off between work and leisure. This is a common trade off. The higher the wage, the more workers they can have (increase in quantity of labor). Higher wage can also mean the Opportunity Cost of leisure is high.
 * **OUTPUT PRICES!**
 * **TECHNOLOGY**
 * **SUPPLY OF OTHER FACTORS**
 * **THE SUPPLY OF LABOR**

What Causes the labor-supply curve to shift?
1. Change in taste: # of women workers 2. Changes in alternative opportunities: workers can change jobs 3. Immigration: more labor

Organize your thoughts on labor markets by watching the video below: media type="youtube" key="gOmWlwdHoOU" height="344" width="425" http://www.youtube.com/watch?v=gOmWlwdHoOU&feature=related

Other factors of production: Land and Capital
Capital: equipment which is used to produce a good Equilibrium: where the value of MP of each factor = price of each factor Picture: http://www.cis.org/articles/2005/back201.gif

Youtube: [|http://kr.youtube.com/watch?v=1ZjYWddjXa0]
> MP of workers = Wage
 * __Summary:__ **
 * They need labor to work for them, the capitals which the labor and the company uses to work and they also need the land.
 * As the demand for a product rises, the demand for labor rises as well. Labor markets try to hire workers where
 * The firms will stop hiring workers at this point because according to the diminishing marginal product rule, if you hire more workers. the MP gradually decreases from its previous MP
 * Capital: equipment which is used to produce a good
 * Equilibrium: where the value of MP of each factor = price of each factor
 * The value of the MP changes along with the Output prices. This causes a shift in the labor-demand curve. If the price decreases, firms can't pay high wages.
 * (technology, supply of other factors, the supply of labor)

Questions for Review
1. Name two of the factors which cause a shift in labor- demand curve Ans: any of these four: output prices, technology, supply of other factors and the supply of labor

2. MP of workers = Wage. Explain The firms will stop hiring workers at this point because according to the diminishing marginal product rule, if you hire more workers. the MP gradually decreases from its previous MP. So, if you hire a lot of workers, you're only hurting yourself. Thus, profit is maximized if you hire workers where MP = Wage