Economics
Factor Demand and Factor Supply
Factor demand refers to the quantity of factors of production, such as labor and capital, that firms are willing to employ at various prices. Factor supply, on the other hand, represents the quantity of these factors that individuals are willing to offer at different prices. The interaction of factor demand and factor supply determines the equilibrium price and quantity of factors in the market.
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4 Key excerpts on "Factor Demand and Factor Supply"
- eBook - ePub
Microeconomics
A Global Text
- Judy Whitehead(Author)
- 2014(Publication Date)
- Routledge(Publisher)
14 The Factor MarketThe Factor Market; Factor Demand under The Marginal Productivity Theory of Distribution ; Factor Supply under The Marginal Productivity Theory of Distribution ; Monopolistic and Monopsonistic Exploitation ; Labour Unions and Unemployment Product Exhaustion theorems .14.1 Introduction to Distribution Theory
The earlier chapters dealt with the theory of value or price theory as it pertains to the product market. The emphasis was on the analysis of consumer demand for a good or service and producer supply of goods and services. In essence, it was the study of the way in which equilibrium was achieved in the product market based on supply and demand analysis. This equilibrium gave the optimum price (or market value) of the product and the optimal quantities.The focus now moves from the product market to the factor market. These factor inputs into the production process are typically identified as labour, capital, land and entrepreneurship, among others. The interest centres on how the value of the product is distributed among the factor inputs that generate output in what is referred to as Distribution Theory. It is still, in a sense, a theory of value and price – the valuing and pricing of inputs into the production process.14.1.1 Derived demand
Factor market theory considers the demand for and supply of the factors of production and the way in which the value of output is created by and shared among these factor inputs. In this case, the major difference between the theory of value and the theory of distribution is that, whereas goods and services are considered to be desired for their intrinsic quality (utility), factor inputs are considered to be desired only for their contribution to output. Hence the demand for factors is seen as a derived demand .Studying the nature of the demand for and supply of factors of production is important at all levels of production and consumption from a small domestic protected market to the large global market. This is particularly so for the increasingly mobile factors in a globalized world, factors such as international capital and entrepreneurship. The study of the factor market provides an understanding of how the structure of the market affects the demand for factors and, particularly in the case of labour, how income and preferences for leisure/work affect factor supply. - eBook - ePub
The Industrial System (Routledge Revivals)
An Inquiry into Earned and Unearned Income
- J. Hobson(Author)
- 2013(Publication Date)
- Routledge(Publisher)
Similarly with demand. If we are to place it in true relation with this supply, demand must mean either the quantity of goods which buyers are willing and able to buy at the current price, or the quantity of money buyers are able and willing to pay for goods at the current price. If, however, taking these meanings of the terms, we turn to the mechanism of the market, we find them defective in that they furnish a merely statical setting to a dynamic problem. Supply and demand, thus conceived, are stationary amounts. Now price-change is a process, and in order to understand this process, what we have to estimate is the rate at which the stock of goods is increased and depleted—a flow and not a fund. But if we conceive supply and demand as quantities of goods (or money) regarded at a particular time, we conceive them as funds. In order to study price-change properly, we must express supply and demand as flows, i.e. measure them as processes taking place in time. Consistently with this purpose, supply may mean the total stock offered for sale at a price during any given time, and demand may mean quantity of purchases at a price within a given time, or quantity of money expended at a price within a given time. But it will be more convenient to define the terms more narrowly, confining supply to the rate of increase of stock: demand to the rate of withdrawal from stock (or the rate of payment of money withdrawing from stock). Thus alone do we rightly come to regard supply and demand as processes or ‘flows’ and the supply and demand with which we concern ourselves will be equivalent to the rate of production and of consumption. 1 Where goods flow out of a stock at the same rate as they flow in, the price remains firm, and demand and supply will be said to be equilibrated; where the inflow is faster than the outflow, prices fall, and supply will be said to exceed demand; where the outflow is faster, prices rise and demand exceeds supply - eBook - ePub
- Tom Craig, David Campbell(Authors)
- 2012(Publication Date)
- Routledge(Publisher)
Supply and Demand DOI: 10.4324/9780080454603-17Learning Objectives
After studying this chapter, students should be able to describe:- the features and determinants of demand;
- what is meant by the demand schedule and the demand curve;
- the features and determinants of supply;
- what is meant by the supply schedule and the supply curve;
- the mechanisms of price determination and disequilibrium;
- the principles of price and income elasticities of demand;
- the principles of cross elasticity of demand;
- the features of factor markets, particularly the labour market.
17.1 Demand
Demand and Effective Demand
Whenever we express an interest in purchasing a good or service, we are indicating a demand. Note though, that it is possible to demand a product without actually buying it. You may demand a new motorcar, but for various reasons (e.g. poverty), you are unable to express your demand in the form of a purchase. It is for this reason that economists distinguish desire for a product with its effective demand. Producers of goods and services are less concerned with how badly you desire their products, and more with how many you will actually buy and at what price.Effective demand, as distinct from demand, has three components:- the actual quantity demanded of a good or service,
- the time period over which the quantity is demanded,
- the price at which the quantity will be demanded over the time period.
Effective demand thus takes into account the customer’s ability to buy, not just the desire – however intense that may be. We may say, therefore, that the total demand for product A is 10,000 units a month if the price is 45 pennies per unit. Thus all three components must be in place before the demand can be said to be effective.The Determinants of Demand
In seeking to answer the question why - eBook - ePub
An Introduction to Economics
Concepts for Students of Agriculture and the Rural Sector
- Berkeley Hill(Author)
- 2021(Publication Date)
- CAB International(Publisher)
3 Demand and Supply: the Price Mechanism in a Market EconomyIntroductionThe study of the demand and supply of goods and services, and the way they interact, forms a fundamental part of economics. Indeed, a surprisingly high proportion of economic problems we come across in everyday life can be explained, although perhaps not solved, by a careful examination of the demand and supply of goods or services. It has even been suggested that a parrot could be turned into a passable economist simply by teaching it to say the words ‘demand and supply’ in reply to all questions.By way of introduction to this important area of study let us take an example from agriculture. At various times of the year some farmers want to buy barley while others are willing to sell barley – a demand and a supply both exist. Transactions occur at markets where buyers and sellers can meet each other. These used to be physical places but nowadays this could equally well be Internet websites. Let us imagine that we can select one market on one day (say, in early December) and have the power to ask as many questions as we like. Furthermore, let us imagine that we can dictate what the price of barley is to be.If we take all those who wish to buy barley and tell them that the price will be £100/t on that day – assume this is a high price for the particular season – very few farmers will wish to buy any and the quantity sold will be small. If we say that the price will be £90/t, more buyers will be interested. As the price is lowered, increasing interest will be shown – more farmers will wish to buy and each will tend to buy more. If we make a table of the quantity of barley we could sell at various prices we end up with a demand schedule .If we moved on to suppliers of barley we would find that at a low price the quantity which they would be prepared to sell would be small. But if we offered a higher figure the quantities offered would increase – more sellers would want to sell and each would want to sell a greater quantity. Again we could draw up a table or schedule of prices and quantities of barley which suppliers would be prepared to supply at these prices.
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