Chapter 16 - The factors of production. In this chapter you will learn: How to define the factors of production and their contribution to output? How to graph demand and supply curves for a factor of production? How to find the equilibrium price and quantity for a factor of production? What the effects of shifts in supply or demand are? | Chapter 16 The Factors of Production © 2014 by McGraw-Hill Education 1 What will you learn in this chapter? • How to define the factors of production and their contribution to output. • How to graph demand and supply curves for a factor of production. • How to find the equilibrium price and quantity for a factor of production. • What the effects of shifts in supply or demand are. • How to define human capital, and what its importance is in the labor market. • What similarities and differences exist between the markets for land and capital and the market for labor. • Why wages might rise above market equilibrium. • What causes imperfectly competitive labor markets. © 2014 by McGraw-Hill Education 2 The factors of production: Land, labor, and capital • The ingredients that go into making a good or service are called factors of production. – Labor, land, and capital (manufactured goods that are used to produce new goods). • Factors of production are bought and sold in markets, in much the same way as the goods they go into producing. • The price of each factor is determined by supply and demand. – Demand for factors of production is referred to as derived demand. © 2014 by McGraw-Hill Education 3 1 Marginal productivity • The amount of each factor of production purchased depends on how much each factor contributes to the value of the end product. • The marginal product is the increase in output that is generated by an additional unit of input. – Marginal product is equal to the slope of the total production curve. Tomatoes produced (tons) 140 MP2 120 Total product 100 8 MP1 6 4 2 0 5 10 15 Farm workers 20 • The more workers a farm employs, the more tomatoes the farm can harvest. • Each additional worker adds fewer tomatoes to the harvest than the previous one. • As the number of workers increases, total production increases, but the marginal product of labor diminishes. – Diminishing marginal product of labor (MPL). © 2014 by McGraw-Hill .
