factors of production markets

factors of production

labor, land, capital

derived demand

demand for a factor of production is derived from a firm’s decision to supply a good in another market

two assumptions

1. all markets are competitive
2. all firms’ sole goal is to make profit

characteristics of a perfectly competitive labor market

* many small firms are hiring workers, not big enough to influence the market
* wage is constant
* workers are wage takers
* firms can hire as many workers as they want with a wage set by the industry

demand for labor

the different quantities of workers that businesses are willing and able to hire at different wages

law of demand for labor

there is an inverse relationship between wage and quantity of labor demanded

supply for labor

the different quantities of individuals that are willing and able to sell their labor at different wages

law of supply for labor

there is a direct relationship between wage and quantity of labor supplied

as wage falls, qd _____, as wage rises, qd__ __

increases, decreases

equilibrium between demand and supply of labor

where the two curves meet

3 resource demand shifters

1. demand (price) of the product
2. productivity of the resource
3. price of related resources

3 resource supply shifters

1. number of qualified workers
2. government regulation
3. personal values related to work and leisure

characteristics of a monopsony

* one firm hiring workers
* workers are relatively immobile
* firm is a wage maker

least cost rule

(MPx)/Px = (MPy)/Py