5.2 Changes in Factor Demand and Factor Supply

• What is factor demand defined as?

  Quantity firms employ at each price
• Factor supply is defined as the quantity available to firms at each price
• What is one determinant of factor demand?

  Productivity of factor
• What is one determinant of factor supply?

  Availability of resources
• Match the determinant of factor demand with its description:

  Productivity of Factor ↔️ Higher productivity increases demand

  Price of Output ↔️ Higher output price increases demand

  Price of Other Factors ↔️ Lower substitute price decreases demand
• How does higher productivity of a factor affect its demand?

  Increases demand
• A higher price of output leads to an increase in the demand for factors used to produce it.
• What happens to the demand for a factor if the price of its substitutes decreases?

  Decreases
• What is factor demand mathematically expressed as?

  $D =$$f(P_{output}, P_{factors})$
• The determinants of factor supply include the availability of resources
• Changes in product demand directly affect factor demand in the same direction.
• What is one determinant of factor supply related to production costs?

  Cost of producing factor
• How does a lower cost of producing a factor affect its supply?

  Increases supply
• An increase in product demand leads to an increase in factor demand
• Higher availability of resources leads to a decrease in factor supply.

  False
• What mathematical expression represents the effect of alternative prices on factor supply?

  $S =$$g(P_{\text{alternatives}})$
• Arrange the determinants of factor supply based on their mathematical expressions:

  1️⃣ $S =$$a \times \text{Resource Quantity}$

  2️⃣ $S =$$f(C_{\text{production}})$

  3️⃣ $S =$$g(P_{\text{alternatives}})$
• What is one determinant of factor supply that depends on the availability of resources?

  Availability of resources
• A decrease in product demand results in a decrease in factor demand.
• How does a lower production cost affect factor supply?

  Increases supply
• Lower prices in alternative uses lead to an increase in factor supply
• Match the determinant of factor supply with its mathematical expression:

  Availability of Resources ↔️ $S =$$a \times \text{Resource Quantity}$

  Cost of Producing Factor ↔️ $S =$$f(C_{\text{production}})$

  Price in Alternative Uses ↔️ $S =$$g(P_{\text{alternatives}})$
• What effect does a lower production cost have on the supply of factors?

  Increases supply
• Lower prices in alternative uses lead to an increase in supply
• How does higher availability of resources affect factor supply?

  Increases supply
• When factor supply increases, the equilibrium factor price decreases
• What happens to the equilibrium quantity when factor supply increases?

  Increases
• The equilibrium factor price is inversely proportional to factor supply.
• The equilibrium quantity is directly proportional to factor supply
• How does technology affect the productivity of factors?

  Enhances productivity
• If technology increases factor productivity, the demand for that factor increases.
• What effect does technology have on resource availability?

  Improves access
• Technology can lower the cost of producing factors, leading to greater supply
• How does technology reduce the cost of producing factors?

  Lower production costs
• Government policies influence factor markets through regulations, taxes, and subsidies.
• What is the effect of minimum wage laws on low-skilled labor demand?

  Reduces demand
• Payroll taxes reduce employer demand for labor because they increase cost
• Factor demand is the quantity firms are willing to employ at each price level.
• How does higher productivity of a factor affect its demand?

  Increases demand
• A lower price of substitutes for a factor will reduce its demand