The market demand for a factor, Macroeconomics

Assignment Help:

The market demand for a factor 

The market demand curve for any input is not simply the horizontal summation of the individual demand curves of all the firms. This is due to the fact that as the price of the input falls all firms will seek to employ more of this factor and expand their output. Thus, the supply curve of the goods shift to the right leading to a fall in the price of the goods, Px. As the price falls, the individual demand curves will shift to the left. This is shown in figure 10.3(a). Initially, w1 is the wage rate and the firm is at the point a on the demand curve d1 and employs l1 units of labor. Summing over all the employing firms, we obtain the total demand for labor L1 at point A in figure 10.3(b). Now suppose that the wage rate falls to w2, Other things remain the same, the firm would move along d1to b1, increasing the employment of labor to l12. However, other things do not remain the same. When the wage rate falls, all firms tend to demand more labor. As a result output expands. The supply curve of output shifts to the right and the price of the goods falls. As price falls the VMPL curve shifts to the left. Suppose the new VMP curve is d2. Thus, when the wage rate falls to w2 the firm will be in equilibrium at b and not at b1. Summing horizontally for all firms, we get point B of the market demand curve. If the fall in the price of the good was not taken into account we would have obtained the point B1. The point B1, does not, however, belong to the market demand curve for labor.

 

2022_Production Account19.png


Related Discussions:- The market demand for a factor

Long-run framework, In the long-run framework, budget surpluses: A. should ...

In the long-run framework, budget surpluses: A. should be run on a permanent basis since they boost saving and investment and stimulate economic growth. B. should be run whenever o

The supply and demand for oil in the us, Over the last year both the supply...

Over the last year both the supply and demand for oil in the US has gone up. What might have caused this and what happened to the price and quantity of oil?

Quality of health care, Explain how changes in the quality of health care w...

Explain how changes in the quality of health care will influence the demand for care.

Central bank overnight interest rate, Q. Central bank overnight interest ra...

Q. Central bank overnight interest rate? Overnight interest rate is a significant interest rate for a central bank and it has methods of influencing this rate. In most nations,

Social cohesion and increase the scope, "International bodies such as the a...

"International bodies such as the aced argue that more unequal income and wealth distribution erode social cohesion and increase the scope for internal conflict."

Explain production as an income generating activity, Explain production as ...

Explain production as an income generating activity. What are the principal difference among government purchases of goods & service and transfer payments? Why are in

Determining the lm curve, This problem revolves around determining the LM c...

This problem revolves around determining the LM curve, as we did earlier in the term such that money demand (M D ) equals money supply (M S ), however in this instance under differ

Financial development in economy, Financial Development A well develope...

Financial Development A well developed financial system is very essential for the smooth functioning of any economy. One set of important statistical indicators that is used to

Determine the exchange rate, Determine the exchange rate When a currenc...

Determine the exchange rate When a currency is freely floating, the central bank doesn't have to set monetary policy to alter the external value of the currency unless instruct

No plans to purchase hot dogs in january, Currently you purchase 6 packages...

Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase hot dogs i

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd