The Markets for the
Factors of Production
Chapter 18
Factors of Production
Factors of production are the inputs used
to produce goods and services,
The Market for
the Factors of Production
The demand for a factor of production is a
derived demand.
– A firm’s demand for a factor of production is
derived from its decision to supply a good in
another market.
The Demand for Labor
Labor markets,like other markets in the
economy,are governed by the forces of
supply and demand.
Most labor services,rather than being final
goods ready to be enjoyed by consumers,
are inputs into the production of other
goods.
(a) The Market for Apples (b) The Market for Apple Pickers
Quantity
of Apples
Quantity of
Apple Pickers
Q L
P W
0 0
Price of
Apples
Wage of
Apple
Pickers
Demand Demand
Supply Supply
The Versatility of
Supply and Demand...
The Production Function and The
Marginal Product of Labor
The production function illustrates the
relationship between the quantity of
inputs used and the quantity of output of
a good.
L a bo r
L
O ut put
Q
Ma r g i na l
Pr o duc t
o f L a bo r
MPL
V a l ue o f t he
Ma r g i na l Pr o duc t
o f L a bo r
V MPL = Px MPL
Wa g e
W
Ma r g i na l Pr o f i t
0 0
1 100 100 $ 1,0 0 0 $500 $500
2 180 80 $800 $500 $300
3 240 60 $600 $500 $100
4 280 40 $400 $500 - $ 1 0 0
5 300 20 $200 $500 - $ 3 0 0
D Pr o f i t V M P L W= -
M P L Q/ L= D DHow the Competitive Firm Decides
How Much Labor to Hire
00
50
100
150
200
250
300
350
0 1 2 3 4 5 6
Quantity of Apple Pickers
Qu
an
tit
y o
f A
pp
les
1
2
3
4
5
The Production Function...
The Production Function and
The Marginal Product of Labor
The marginal product of labor is the
increase in the amount of output from an
additional unit of labor.
MPL = DQ/DL
MPL = (Q2 – Q1)/(L2 – L1)
Diminishing Marginal
Product of Labor
As the number of workers increases,the
marginal product of labor declines,
As more and more workers are hired,each
additional worker contributes less to
production than the prior one.
The production function becomes flatter
as the number of workers rises.
The Value of the Marginal
Product of Labor
The value of the marginal product is the
marginal product of the input multiplied
by the market price of the output.
– VMPL = MPL X P
The value of the marginal product is
measured in dollars.
It diminishes as the number of workers
rises because the market price of the good
is constant.
The Value of the Marginal Product
and the Demand for Labor
To maximize profit,the competitive,
profit-maximizing firm hires workers up
to the point where the value of marginal
product of labor equals the wage,
VMPL = Wage
The value-of-marginal-product curve is
the labor demand curve for a competitive,
profit-maximizing firm.
0 Quantity of
Apple Pickers
Value of
the
Marginal
Product
Value of marginal product
(demand curve for labor)
Market
wage
Profit-maximizing
quantity
The Value of the
Marginal Product of Labor
Input Demand and Output Supply
When a competitive firm hires labor up to
the point at which the value of the
marginal product equals the wage,it also
produces up to the point at which the
price equals the marginal cost.
What Causes the Labor Demand
Curve to Shift?
Output Price
Technological Change
Supply of Other factors
The Labor Supply Curve
The labor supply curve reflects how
workers’ decisions about the labor-leisure
tradeoff respond to changes in
opportunity cost.
An upward-sloping labor supply curve
means that an increase in the wages
induces workers to increase the quantity
of labor they supply.
Supply
Wage (price
of labor)
Quantity of
Labor
0
The Labor Supply Curve
What Causes the Labor Supply
Curve to Shift?
Changes in Tastes
Changes in Alternative Opportunities
Immigration
Equilibrium in the Labor Market
The wage adjusts to balance the supply
and demand for labor.
The wage equals the value of the marginal
product of labor.
Equilibrium
employment,L
Supply
Wage (price
of labor)
Quantity of
Labor
0
Demand
Equilibrium
wage,W
Equilibrium in the Labor Market
Labor supply and labor demand
determine the equilibrium wage.
Shifts in the supply or demand curve for
labor cause the equilibrium wage to
change.
Equilibrium in the Labor Market
Wage
(price of
labor)
W1
0 Quantity of
Labor
L1
Supply,S1
Demand
2.,..reduces
the wage...
3.,..and raises employment.
1,An increase inlabor supply...
S2
W2
L2
A Shift in Labor Supply...
A Shift in Labor Supply...
An increase in the supply of labor,
Results in a surplus of labor.
Puts downward pressure on wages.
Makes it profitable for firms to hire more
workers.
Results in diminishing marginal product.
Lowers the value of the marginal product.
Gives a new equilibrium,
Wage
(price of
labor)
W1
0 Quantity ofLaborL1
Supply
Demand,D1
2.,..increases
the wage...
3.,..and increases employment.
1,An increase in
labor demand...
D2
W2
L2
A Shift in Labor Demand...
Shifts in Labor Demand
An increase in the demand for labor,
Makes it profitable for firms to hire more
workers.
Puts upward pressure on wages.
Raises the value of the marginal product.
Gives a new equilibrium,
Three Determinants of Productivity
Physical Capital
– When workers work with a larger quantity of
equipment and structures,they produce more.
Human Capital
– When workers are more educated,they
produce more.
Technological Knowledge
– When workers have access to more
sophisticated technologies,they produce
more.
Productivity and Wage Growth
in the United States
Time Period Growth Rate of Productivity Growth Rate of Real Wages
1959 - 2000 2 2
1959 - 1973 2.9 3
1973 - 1995 1.3 1.1
1995 - 2000 2.6 2.9
Productivity and Wage Growth
around the World
C o u n t r y
G r o w t h R a t e
o f P r o d u c t i v i t y
G r o w t h R a t e
o f R e a l Wa g e s
S o u t h Ko r e a 8,5 7,9
H o n g Ko n g 5,5 4,9
S i n g a p o r e 5,3 5,0
I n d o n e s i a 4,0 4,4
J a p a n 3,6 2,0
I n d i a 3,1 3,4
U n i t e d Ki n g d o m 2,4 2,4
U n i t e d S t a t e s 1,7 0,5
B r a z i l 0,4 - 2,4
Me x i c o - 0,2 - 3,0
A r g e n t i n a - 0,9 - 1,3
I r a n - 1,4 - 7,9
Other Factors of Production,
Land and Capital
Capital refers to the stock of equipment
and structures used for production.
The economy’s capital represents the
accumulation of goods produced in the
past that are being used in the present to
produce new goods and services.
Prices of Land and Capital
The purchase price is what a person pays
to own a factor of production indefinitely.
The rental price is what a person pays to
use a factor of production for a limited
period of time.
Equilibrium in Markets
for Land and Capital
The rental price of land and the rental
price of capital are determined by supply
and demand,
The firm increases the quantity hired until
the value of the factor’s marginal product
equals the factor’s price.
Quantity
of Land
Quantity of
Capital
Q Q
P P
0 0
Rental
Price of
Land
Rental
Price of
Capital
Demand Demand
Supply
Supply
(a) The Market for Land (b) The Market for Capital
The Markets for Land and Capital
Equilibrium in Markets
for Land and Capital
Each factor’s rental price must equal the
value of their marginal product,
They each earn the value of their marginal
contribution to the production process.
Linkages Among
the Factors of Production
Factors of production are used together.
The marginal product of any one factor
depends on the quantities of all factors
that are available.
A change in the supply of one factor alters
the earnings of all the factors.
A change in earnings of any factor can be
found by analyzing the impact of the
event on the value of the marginal product
of that factor.
Summary
The three most important factors of
production are labor,land,and capital.
The demand for factors,such as labor,is a
derived demand that comes from firms
that use the factors to produce goods and
services.
Competitive,profit-maximizing firms hire
each factor up to the point at which the
value of the marginal product of the factor
equals its price.
Summary
The supply of labor arises from
individuals’ tradeoff between work and
leisure.
An upward-sloping labor supply curve
means that people respond to an increase
in the wage by enjoying less leisure and
working more hours.
Summary
The price paid to each factor adjusts to
balance the supply and demand for that
factor.
Because factor demand reflects the value
of the marginal product of that factor,in
equilibrium each factor is compensated
according to its marginal contribution to
the production of goods and services.
Summary
Because factors of production are used
together,the marginal product of any one
factor depends on the quantities of all
factors that are available.
As a result,a change in the supply of one
factor alters the equilibrium earnings of all
the factors.
经济学可以更有趣
为什么美国的工会对非法移民的态度特别强烈？
为什么有的公司愿意奖励员工汽车而不是等值的货币呢？
Factors of Production
Chapter 18
Factors of Production
Factors of production are the inputs used
to produce goods and services,
The Market for
the Factors of Production
The demand for a factor of production is a
derived demand.
– A firm’s demand for a factor of production is
derived from its decision to supply a good in
another market.
The Demand for Labor
Labor markets,like other markets in the
economy,are governed by the forces of
supply and demand.
Most labor services,rather than being final
goods ready to be enjoyed by consumers,
are inputs into the production of other
goods.
(a) The Market for Apples (b) The Market for Apple Pickers
Quantity
of Apples
Quantity of
Apple Pickers
Q L
P W
0 0
Price of
Apples
Wage of
Apple
Pickers
Demand Demand
Supply Supply
The Versatility of
Supply and Demand...
The Production Function and The
Marginal Product of Labor
The production function illustrates the
relationship between the quantity of
inputs used and the quantity of output of
a good.
L a bo r
L
O ut put
Q
Ma r g i na l
Pr o duc t
o f L a bo r
MPL
V a l ue o f t he
Ma r g i na l Pr o duc t
o f L a bo r
V MPL = Px MPL
Wa g e
W
Ma r g i na l Pr o f i t
0 0
1 100 100 $ 1,0 0 0 $500 $500
2 180 80 $800 $500 $300
3 240 60 $600 $500 $100
4 280 40 $400 $500 - $ 1 0 0
5 300 20 $200 $500 - $ 3 0 0
D Pr o f i t V M P L W= -
M P L Q/ L= D DHow the Competitive Firm Decides
How Much Labor to Hire
00
50
100
150
200
250
300
350
0 1 2 3 4 5 6
Quantity of Apple Pickers
Qu
an
tit
y o
f A
pp
les
1
2
3
4
5
The Production Function...
The Production Function and
The Marginal Product of Labor
The marginal product of labor is the
increase in the amount of output from an
additional unit of labor.
MPL = DQ/DL
MPL = (Q2 – Q1)/(L2 – L1)
Diminishing Marginal
Product of Labor
As the number of workers increases,the
marginal product of labor declines,
As more and more workers are hired,each
additional worker contributes less to
production than the prior one.
The production function becomes flatter
as the number of workers rises.
The Value of the Marginal
Product of Labor
The value of the marginal product is the
marginal product of the input multiplied
by the market price of the output.
– VMPL = MPL X P
The value of the marginal product is
measured in dollars.
It diminishes as the number of workers
rises because the market price of the good
is constant.
The Value of the Marginal Product
and the Demand for Labor
To maximize profit,the competitive,
profit-maximizing firm hires workers up
to the point where the value of marginal
product of labor equals the wage,
VMPL = Wage
The value-of-marginal-product curve is
the labor demand curve for a competitive,
profit-maximizing firm.
0 Quantity of
Apple Pickers
Value of
the
Marginal
Product
Value of marginal product
(demand curve for labor)
Market
wage
Profit-maximizing
quantity
The Value of the
Marginal Product of Labor
Input Demand and Output Supply
When a competitive firm hires labor up to
the point at which the value of the
marginal product equals the wage,it also
produces up to the point at which the
price equals the marginal cost.
What Causes the Labor Demand
Curve to Shift?
Output Price
Technological Change
Supply of Other factors
The Labor Supply Curve
The labor supply curve reflects how
workers’ decisions about the labor-leisure
tradeoff respond to changes in
opportunity cost.
An upward-sloping labor supply curve
means that an increase in the wages
induces workers to increase the quantity
of labor they supply.
Supply
Wage (price
of labor)
Quantity of
Labor
0
The Labor Supply Curve
What Causes the Labor Supply
Curve to Shift?
Changes in Tastes
Changes in Alternative Opportunities
Immigration
Equilibrium in the Labor Market
The wage adjusts to balance the supply
and demand for labor.
The wage equals the value of the marginal
product of labor.
Equilibrium
employment,L
Supply
Wage (price
of labor)
Quantity of
Labor
0
Demand
Equilibrium
wage,W
Equilibrium in the Labor Market
Labor supply and labor demand
determine the equilibrium wage.
Shifts in the supply or demand curve for
labor cause the equilibrium wage to
change.
Equilibrium in the Labor Market
Wage
(price of
labor)
W1
0 Quantity of
Labor
L1
Supply,S1
Demand
2.,..reduces
the wage...
3.,..and raises employment.
1,An increase inlabor supply...
S2
W2
L2
A Shift in Labor Supply...
A Shift in Labor Supply...
An increase in the supply of labor,
Results in a surplus of labor.
Puts downward pressure on wages.
Makes it profitable for firms to hire more
workers.
Results in diminishing marginal product.
Lowers the value of the marginal product.
Gives a new equilibrium,
Wage
(price of
labor)
W1
0 Quantity ofLaborL1
Supply
Demand,D1
2.,..increases
the wage...
3.,..and increases employment.
1,An increase in
labor demand...
D2
W2
L2
A Shift in Labor Demand...
Shifts in Labor Demand
An increase in the demand for labor,
Makes it profitable for firms to hire more
workers.
Puts upward pressure on wages.
Raises the value of the marginal product.
Gives a new equilibrium,
Three Determinants of Productivity
Physical Capital
– When workers work with a larger quantity of
equipment and structures,they produce more.
Human Capital
– When workers are more educated,they
produce more.
Technological Knowledge
– When workers have access to more
sophisticated technologies,they produce
more.
Productivity and Wage Growth
in the United States
Time Period Growth Rate of Productivity Growth Rate of Real Wages
1959 - 2000 2 2
1959 - 1973 2.9 3
1973 - 1995 1.3 1.1
1995 - 2000 2.6 2.9
Productivity and Wage Growth
around the World
C o u n t r y
G r o w t h R a t e
o f P r o d u c t i v i t y
G r o w t h R a t e
o f R e a l Wa g e s
S o u t h Ko r e a 8,5 7,9
H o n g Ko n g 5,5 4,9
S i n g a p o r e 5,3 5,0
I n d o n e s i a 4,0 4,4
J a p a n 3,6 2,0
I n d i a 3,1 3,4
U n i t e d Ki n g d o m 2,4 2,4
U n i t e d S t a t e s 1,7 0,5
B r a z i l 0,4 - 2,4
Me x i c o - 0,2 - 3,0
A r g e n t i n a - 0,9 - 1,3
I r a n - 1,4 - 7,9
Other Factors of Production,
Land and Capital
Capital refers to the stock of equipment
and structures used for production.
The economy’s capital represents the
accumulation of goods produced in the
past that are being used in the present to
produce new goods and services.
Prices of Land and Capital
The purchase price is what a person pays
to own a factor of production indefinitely.
The rental price is what a person pays to
use a factor of production for a limited
period of time.
Equilibrium in Markets
for Land and Capital
The rental price of land and the rental
price of capital are determined by supply
and demand,
The firm increases the quantity hired until
the value of the factor’s marginal product
equals the factor’s price.
Quantity
of Land
Quantity of
Capital
Q Q
P P
0 0
Rental
Price of
Land
Rental
Price of
Capital
Demand Demand
Supply
Supply
(a) The Market for Land (b) The Market for Capital
The Markets for Land and Capital
Equilibrium in Markets
for Land and Capital
Each factor’s rental price must equal the
value of their marginal product,
They each earn the value of their marginal
contribution to the production process.
Linkages Among
the Factors of Production
Factors of production are used together.
The marginal product of any one factor
depends on the quantities of all factors
that are available.
A change in the supply of one factor alters
the earnings of all the factors.
A change in earnings of any factor can be
found by analyzing the impact of the
event on the value of the marginal product
of that factor.
Summary
The three most important factors of
production are labor,land,and capital.
The demand for factors,such as labor,is a
derived demand that comes from firms
that use the factors to produce goods and
services.
Competitive,profit-maximizing firms hire
each factor up to the point at which the
value of the marginal product of the factor
equals its price.
Summary
The supply of labor arises from
individuals’ tradeoff between work and
leisure.
An upward-sloping labor supply curve
means that people respond to an increase
in the wage by enjoying less leisure and
working more hours.
Summary
The price paid to each factor adjusts to
balance the supply and demand for that
factor.
Because factor demand reflects the value
of the marginal product of that factor,in
equilibrium each factor is compensated
according to its marginal contribution to
the production of goods and services.
Summary
Because factors of production are used
together,the marginal product of any one
factor depends on the quantities of all
factors that are available.
As a result,a change in the supply of one
factor alters the equilibrium earnings of all
the factors.
经济学可以更有趣
为什么美国的工会对非法移民的态度特别强烈？
为什么有的公司愿意奖励员工汽车而不是等值的货币呢？
