• Factor Markets:  The market for stuff that makes stuff.  (Land, Labor and Capital) 

    2011Final Project- power point 
    2012 Final Project
    Essential Questions
    • In what sense is demand for labor “derived” demand?
    • What is the relationship between a firm’s marginal revenue product curve and it’s demand for labor?
    • What are the key factors that influence elasticity of demand for inputs?

    Key Concepts


    Class Notes


    • Derived Demand
    • Economic Rent
    • Marginal Physical Product of Labor (MPP)
    • Marginal Revenue Product (MRP)= price of firms output* MPP
    • Marginal Revenue Cost (MRC)= Change in total cost/change in amount of resource used


    Firm will keep hiring until additional cost of hiring last worker = additional revenue made by that worker


    In a competitive labor market Derived Demand Curve for labor is downward sloping


    Price Elasticity of Demand for Inputs will be greater based on

    • The greater the price elasticity of demand
    • The # of substitutes for input
    • The larger proportion of total cost of that input
    • The longer period of time being considered


    Long- Run Demand for labor is negatively sloped

    • Substitution Effect- Increased wages leads to an increase in demand for innovation
    • Output Effect- Increased wages lead to decreased output


    Wage Determination

    • Laborers supply labor
    • Firms Demand Labor
    • Efficiency Wages- set above equilibrium
    • Hiring “ Insiders”


    Reasons for Shifts in Demand

    • Change in demand for final product – auto industry
    • Change in Labor Productivity
    • Change in price of substitutes and compliments


    Determinants for supply of labor

    • Wages in other industries
    • Changes in working conditions
    • Job flexibility


    A Monopolists input demand curve

    • MRP<P
    • Monopolies hire less workers


    Derived demand for land, labor and capital leads to cost minimization

    • Outsourcing American Jobs
    • Investment in Technology
    • Is this sort of creative destruction good for America?
    • Monopsonies
    Helpful Websites
    Former AP FRQ Questions
    • 2011 (Form B) #3
    • 2010 #2
    • 2010 (Form B) #2
    • 2007 #2 


Last Modified on January 8, 2021