Introduction to Factor Markets - AP Microeconomics

Payment to a factor in excess of its opportunity cost. Earnings above what's needed to keep the factor in current use.

Increases factor demand. Lower production costs increase profitability and input demand.

More capital intensity may reduce labor demand. Capital and labor can be substitutes in production.

Wages increase. Reduced supply creates scarcity, driving wages up.

Geographical limitations. Fixed land area makes supply perfectly inelastic.

The additional cost of hiring one more worker. The wage increase needed to attract one additional worker.

Demand increases. Higher productivity increases marginal revenue product.

Increases labor demand. Higher output prices increase marginal revenue product.

Interest. The return earned by capital owners for providing funds.

A single buyer of labor. Market power allows paying wages below competitive levels.

Increases demand if it complements labor. If technology enhances worker productivity, demand rises.

Increased work hours as wages rise. Workers substitute leisure for work when wages increase.

Increases labor supply. More workers enter the market, shifting supply rightward.

Entrepreneurs assume risk for potential profit. Risk-taking is rewarded with potential profits from successful ventures.

The ability to coordinate and manage production. Involves organizing resources, taking risks, and making business decisions.

It tends to increase wages. Higher productivity increases workers' marginal revenue product.

It can cause unemployment if set above equilibrium. Price floor above equilibrium creates surplus of labor.

Direct relationship; price increases lead to more supplied. Law of supply applies to factor markets too.

MRP = MP × MR. Multiplies marginal product by marginal revenue to find factor's value.

Demand for a factor of production arising from demand for the good it produces. Factor demand depends on consumer demand for the final product.

Upward sloping. Higher wages incentivize more people to work.

Rent. Payment for using natural resources and real estate.

Labor. Wages are the primary payment for human work effort.

Man-made resources used in production. Physical assets like machinery, buildings, and equipment used in production.

It increases. Higher product demand increases marginal revenue product of labor.

Land, labor, capital, and entrepreneurship. The four basic inputs needed for all production processes.

Interest rates. Higher rates increase the cost of borrowing capital.

Generally increases wages. Collective bargaining gives workers more negotiating power.

MRP determines the demand for a factor. Firms hire factors up to where $MRP$ equals factor price.