Demand Affecting Factors
Demand for a factor is generally affected by the following factors:
(1) Demand for the produced goods: since the demand for factor is a derived demand, hence its demand will depend on the demand for goods that it helps to produce.
(2) Elasticity of demand for the final product: since the factor of production is demanded only because it makes something which is demanded the demand for the factor itself will depend upon the elasticity of demand for the goods produced by it. If the demand for the goods produced by it produces is inelastic or less elastic its own demand will also be inelastic or less elastic and vice-versa.
(3) Productivity of a factor- the demand for a factor is generally influenced by its productivity. It is the marginal productivity of a factor which will determine the demand in the market. This is why it is generally assumed that the marginal revenue product of a factor acts as its demand curve also.
After analyzing the various factors governing the demand for various factors of production let us now discuss the nature of demand curve for an industry for a given factor of production. The demand curve of an industry merely a sum of total of the individual demand curves of various firms constituting that industry.
The demand of the firm for a factor depends on its marginal revenue productivity of and quantity of the factor that a firm will employ will depend on the prevailing factor price. It means that more units of a factor will be employed if factor prices are low and less will be employed if factor prices are high. When the factor price is OW the firm is in equilibrium at point P where it demands units of factor of production.
The factor price is OW1 its equilibrium point will be P1 where it demands OM1 units of the factor input. Similarly, at OW2 factor price, the demand would be OM2 units. The MRP will be demand curve for a factor of production by an individual unit. But for determining the price of a factor we require the total demand of the market. The total demand can be derived by summing up the MRP curves of all the firms. In panel (B) of fig. DD is the market demand curve. It can be seen that in both the panels Y-axis measure the same scale while X-axis are drawn on different scales. We may assume that there are thousands of firms in the market. At OW factor price the demand for the individual firm is OM units but the demand of the entire market at the same factor price OW is equal to ON. In the same way we may find out the demand for the factor at different factor prices.
Fig. reveals that industry’s demand curve for the factor slopes downward to the right. Industry’s demand curve for the factor slopes downward since the MRP curves of constituent firms whose lateral summation is done to obtain industry’s demand for consumer’s goods and that for factors of production. Just as the demand curve for the factors of production slopes downward to the right in the same way the demand curve for consumer goods also slopes downward to the right.
Services:- Demand Affecting Factors Homework | Demand Affecting Factors Homework Help | Demand Affecting Factors Homework Help Services | Live Demand Affecting Factors Homework Help | Demand Affecting Factors Homework Tutors | Online Demand Affecting Factors Homework Help | Demand Affecting Factors Tutors | Online Demand Affecting Factors Tutors | Demand Affecting Factors Homework Services | Demand Affecting Factors