demand for factors of production is derived demand

42. The application of sophisticated technologies to production processes has boosted the marginal products of workers who have the skills these technologies require. In the long run, a wage increase will induce the firm to use relatively more capital than when labour was less expensive in producing a given output. A one-year savings deposit at a bank offering an interest rate of 4.5%. d. derived. Refer to Scenario 18-1. Derived demand is the demand for a product that comes from the usage of others. As Ms. Lancaster adds accountants, her service can take more calls. The LibreTexts libraries arePowered by NICE CXone Expertand are supported by the Department of Education Open Textbook Pilot Project, the UC Davis Office of the Provost, the UC Davis Library, the California State University Affordable Learning Solutions Program, and Merlot. To distinguish the different output markets we use the term marginal revenue product of labour () when the demand for the output slopes downward. a. markets for goods and services and to markets for labor services. WebThe factor demand curve is the graphical illustration of the relationship between the price of a factor of production and the quantity demanded of that factor of production. 28. demand for the For the 30th worker, the value of the marginal product of labor is $600. The production of goods and the provision of services requires workerslabor. The level of demand for labor depends solely on the level of demand for goods and services. Since there is no demand for a workforce without a demand for the goods it produces or the services they provide, labor is a component of derived demand. It is the portion of the curve that exhibits diminishing returns, and a firm will always seek to operate in the range of diminishing returns to the factors it uses. Want to create or adapt books like this? When computers and computer software improved and declined in price, clerical workers were replaced by computers that were operated by accountants. WebThe derived demand curve answers the question what quantity, x, of the selected factor of production would be demanded at an arbitrary price, y, under the above conditions. Formally, the demand for labour (and capital) is thus a derived demand, in contrast to being a 'final' demand. b. (iii) the marginal product of that worker. With marginal factor cost constant, not to continue onto the downward-sloping part of the marginal revenue curve would be to miss out on profit-enhancing opportunities. A firms demand curve for a factor is the downward-sloping portion of the marginal revenue product curve of the factor. (iii) changes in output prices This second effect can be called an output effect. Along the vertical axis of the production function we typically measure a. represented by a vertical line on a supply-demand diagram. If the firm were to hire one more worker the contribution of that worker to its profit would be negative , and if it hired one worker less it would forego the opportunity to make an additional profit of $50 on the 9th unit . Number of Calculators WebTHE DERIVED DEMAND CURVE FOR A PRODUCTIVE FACTOR AND THE INDUSTRY SUPPLY CURVE By RICHARD F. MUTH MOST students of economics are familiar with Web1. If it hires 11 workers, it can produce 4.2 sets of cabinets per day. b. [1] In essence, the demand for, say, a factor of production by a firm is dependent on the demand by consumers for the product produced by the firm. Tables of contents for recent issues of Oxford Economic Papers are available at http://oep.oupjournals.org/contents-by-date.0.shtml. a. c. become a seller in at least one factor market. production demand. b. no control over the price of sandwiches but some control over the wage it pays to its workers. Ans: Derived demand Explanation: Demand for a good for direct consumption is called direct demand, whereas demand for a good which he View the full answer Transcribed image text: The demand for factors of production is referred to as: Multiple Choice primary demand. (i) The price of muffins increases. The same could be done here: At lower (or higher) wages, each firm will demand more (or less) labour. Competitive firms decide how much output to sell by producing output until the price of the good equals For the 11th worker, the marginal profit is $600. (i) and (ii) But when the VMPL falls below the wage rate employment should stop. A firm must have labor to produce goods and services. b. labor-augmenting technology. It will shift to the right. b. This in turn will moderate the demand for labour it is slightly less valuable now that the price of the output it produces has fallen. d. rise or fall; either is possible. We term this the value of the marginal product. What is derived demand give a good example to support your answer? Think of Hydro Quebec building a dam in Northern Quebec. Management has constructed the following table of estimates of rates of return and probabilities for pessimistic, most likely, and optimistic results. We estimate the global land, green water, blue water, and water scarcity footprint at the country scale from a But why stop there? For example, the demand for pencils will result in the demand for wood, graphite, paint and eraser materials. a. a decrease in output price 240 A reduction in the market price for a tax advice call, An increase in the market fee for the accountants that TeleTax hires, An increase in the marginal product of each accountant due to an expansion of the facility for screening and routing calls and an increase in the number of reference materials available to the accountants. Demand for labour: a derived demand, reflecting the value of the output it produces. a. it is driven to produce as much of its product as possible. (iv) Labor demand shifts to the left. Calculate the range for the rate of return for each of the two cameras. c. Considers movements created by the requirements of other movements. are the examples of derived demand. WebDemand for factors of production is indirect demand or derived demand. More the demand of the product more will be its production and, hence, more will be demand of the factor services required to produce the product. The employees themselves do not appear in the employer's utility function; rather, they enable employers to profit by fulfilling the demand by consumers for their product. (i) the additional cost of that worker. D. none of the above. For example, labour is a factor of production. [2] 41. Which of the following events will lead to an increase in Dan's demand for the services of bakers? WebDemand for tanks is now outstripping production by a factor of ten, according to The Economist. The price and quantity of airplanes available will go up. At various wage rates, less labour is now demanded. An automobile producer's decision to supply more cars will lead to an increase in the demand for automobile production workers. For example, the demand for labor in the construction of buildings is a derived demand. For example, labor does not satisfy our wants directly. The factors of production are best defined as the. It is derived from the demand for the product that the factor produces. A profit-maximizing firm will base its decision to hire additional units of labor on the marginal decision rule: If the extra output that is produced by hiring one more unit of labor adds more to total revenue than it adds to total cost, the firm will increase profit by increasing its use of labor. Refer to Scenario 18-1. WebDemand for factors of production is _____. Factor-market analysis could not be complete without some characterization of, 10. While one hospital may be able to attract radiologists from another hospital to meet a shortage, this does not increase the supply in the economy as a whole. Suppose that workers who sort outgoing mail for a company use rubber bands to group mail. The demand for a good increases or decreases depending on several factors. TeleTaxs demand curve would not shift; rather TeleTax would move up along its same demand curve for accountants. a. the price for which she will sell the fish she catches. c. (i) and (iii) Overall, the paper shows that growing mine production has been clearly matched by growing reserves and resources, although there are numerous complex Although most secretaries type, take shorthand, and deal with callers, the time spent on these duties varies in different types of organizations. In contrast, the 2000 edition of the Handbook describes the work of secretaries quite differently: As technology continues to expand in offices across the Nation, the role of the secretary has greatly evolved. b. the value of marginal product. 19. d. supply-shifting technology. (i) only d. Supply would increase. A money market fund with an average maturity of 30 days offering a current annualized yield of 3%. The wage is the price that equilibrates the supply and demand for a given type of labour, and it reflects the value of that labour in production. d. setter in both markets. An increase in the demand for a product increases its price and increases the demand for factors that produce the product. 15. a. Which of the following events will lead to a decrease in Charles's demand for the services of bakers? WebDemand for factors of production is derived demand. So here we have completed 9. But how much labor will the firm employ? In other words, it is a demand for a good because another d. no influence over either the price of salmon or the wages paid to crew members. a. A reduction in market price would decrease the marginal revenue product of labor. In a perfectly competitive market the marginal revenue a firm receives equals the market-determined price P. Therefore, for firms in perfect competition, we can express marginal revenue product as follows: [latex]In \: perfect \: competition, \: MRP = MP \times P[/latex]. b. minimize variable costs. The marginal revenue product of labor will change when there is a change in the quantities of other factors employed. Suppose that an accountant, Stephanie Lancaster, has started an evening call-in tax advisory service. a. It may also allow other production processes to be computerized and thus reduce the demand for workers who had been employed in those processes. For example, in Figure 12.4 Marginal Revenue Product and Demand, adding the second accountant adds $200 to revenue but only $150 to cost, so hiring that accountant clearly adds to profit. The global Boat Lifts Market Report 2022 covers all the comprehensive industry factors that are closely affecting the growth of the Boat Lifts market To estimate production/consumption analysis of the global Boat Lifts market with respect to the significant regions. If still another programmer would increase annual total revenue by $48,000 but would also add $49,000 to the firms total cost, that programmer should not be hired because he or she would add less to total revenue than to total cost and would reduce profit. It is determined by the demand for the final good or service produced. For the 11th worker, the marginal profit is $600. But how is this choice affected when the price of labour or capital changes? 31. For instance, fuel consumption from transportation activities must be supplied by an energy production system requiring movements from zones of extraction, to refineries and storage facilities and, finally, to places of consumption. c. price of the product that the firm sells. Because a firm's demand for a factor of production is derived from its decision to supply a good in the market, it is called a, 7. An increase in the market fee that TeleTax pays the accountants it hires corresponds to an increase in marginal factor cost. (ii) Dan adds three new ovens to the kitchen area to help the bakers work faster. Remember: the factors of 2. With perfect competition, the marginal revenue product for labor, MRPL, equals the marginal product of labor, MPL, times the price, P, of the good or service the labor produces: [latex]In \: perfect \: competition, \: MRP_L = MP_L \times P[/latex]. The term was first introduced by Alfred Marshall in his Principles of Economics [2] in 1890. d. revenue earned from hiring one more factor of production. In Microeconomics, derived demand is the demand of a particular service or good as a result of price fluctuation of other related products or services. a. taker in the salmon market and a wage setter in the crew market. WebLabour demand is defined as the amount of labour that employers seek to hire during a given time period at a particular wage rate. (i) The marginal productivity of labor increases. Legal. b. taker in the crew market and a price setter in the salmon market. 47. If the price per calculator in a perfectly competitive product market is $20, how many workers would the firm employ if the weekly wage rate is $1000? a. d. All of the above are correct. b. represented by an upward-sloping line on a supply-demand diagram. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide. d. All of the above are correct. c. some influence over both the price of salmon and the wages paid to crew members. Technological changes can increase the demand for some workers and reduce the demand for others. Oxford Economic Papers is a quarterly journal publishing papers in a wide range of areas in theoretical and applied economics. b. d. the quantity of output. WebA: Price elasticity of demand measures the responsiveness of change in quantity demand to change in question_answer Q: Suppose Hondamaha, a motorcycle manufacturing firm headquartered in Japan, builds a production plant d. no control over either the price of sandwiches or the wage it pays to its workers. The optimal amount of labour to employ in this case is determined in exactly the same manner: Employ the amount of labour where its contribution is marginally profitable. Marshall, Alfred. The demand for each of the factors of production is often referred to as a "derived" demand to emphasize the fact that the relationship between the factor's price and the quantity of the factor demanded by firms employing it in production is directly dependent on consumer demand for the final product(s) the factor is used to produce. It is analogous to the goods market, but with a subtle difference. Was this answer helpful? This page titled 12.1: Labour - a derived demand is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Douglas Curtis and Ian Irvine (Lyryx) via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request. It can be constructed under two assumptions: First, production conditions, the demand curve for the final good, and the supply curves for all other factors of production are held constant. d. it does not care directly about the number of workers it hires. Such an invention would be an example of 0 WebBecause the demand for factors that produce a product depends on the demand for the product itself, factor demand is said to be derived demand. (ii) The marginal productivity of labor decreases. This implies that the function is the demand for labour function because it determines the most profitable amount of labour to employ at any wage. Clearly the optimal amount to employ is 7 units: The value of the seventh worker to the firm is $1,750 and the value of the eighth worker is $1,400. This demand comes from the producers side. The essential difference here is that when a firm faces an upward sloping labour supply it will have to pay more to attract additional workers and also pay more to its existing workers. Using the example of TeleTax, at $150 per accountant per night, we found that Ms. Lancaster maximizes profit by hiring five accountants. d. It will remain unchanged. 36. b. wage = value of marginal product of labor. What role does your forecast of future interest rates play in your decision? (ii) the wage paid to that worker. 20 radios. (ii) and (iii) This problem has been solved! Dan owns one of the many bakeries in New York City. a. some influence over the wages paid to crew members but no influence over the price of salmon. For example, if a computer software company could increase its annual total revenue by $50,000 by hiring a programmer at a cost of $49,000 per year, the marginal decision rule says that it should do so. Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R and S. Both should provide benefits over a 101010 year period, and each requires an initial investment of $4,000\$ 4,000$4,000. { "12.01:_Labour_-_a_derived_demand" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()", "12.02:_The_supply_of_labour" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()", "12.03:_Labour_market_equilibrium_and_mobility" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()", "12.04:_Capital_-_concepts" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()", "12.05:_The_capital_market" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()", "12.06:_Land" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()", "12.07:_Key_Terms" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()", "12.08:_Exercises_for_Chapter_12" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()" }, { "12:_Labour_and_capital" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()", "13:_Human_capital_and_the_income_distribution" : "property get [Map MindTouch.Deki.Logic.ExtensionProcessorQueryProvider+<>c__DisplayClass228_0.b__1]()" }, [ "article:topic", "license:ccbyncsa", "authorname:curtisirvine", "licenseversion:40", "source@https://lyryx.com/subjects/economics/principles-of-microeconomics/" ], https://socialsci.libretexts.org/@app/auth/3/login?returnto=https%3A%2F%2Fsocialsci.libretexts.org%2FBookshelves%2FEconomics%2FPrinciples_of_Microeconomics_(Curtis_and_Irvine)%2F05%253A_The_Factors_of_Production%2F12%253A_Labour_and_capital%2F12.01%253A_Labour_-_a_derived_demand, $ \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}}}$ $ \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash{#1}}} $$\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$ $\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$$\newcommand{\AA}{\unicode[.8,0]{x212B}}$, Table 12.1 Short-run production and labour demand. c. an increase in the marginal productivity of workers (i) only A dual cost function approach has been selected and therefore its functional form and specification are outlined in the last section. (i) changes in productivity That increase in their marginal product would increase the demand for accountants. c. its revenue will always be maximized as well. It is simply the market wage (i.e., the price per unit of labor). b. [1] In essence, the demand for, say, a factor of production by a firm is dependent on the demand by consumers for the product produced by the firm. Over the years, the fall in demand for train travel has reduced the demand for railroad conductors. Esparta Palma Bill Gates CC BY-ND 2.0. WebDerived demand is the demand for a factor of production. WebIn economics, derived demand (DD) is the demand for an item or service derived from the demand for another or related good or service. Office automation and organizational restructuring have led secretaries to assume a wide range of new responsibilities once reserved for managerial and professional staff. b. secondary demand. c. the quantity of input. a. psychobiologist b. hypothesis c. structuralist d. functionalist e. behaviorist f. theory g. clinical psychologist h. developmental psychologist i. experimental psychology j. industrial/ organizational psychology. Per Week A robot, for example, may substitute for some kinds of assembly-line labor. The amount that an additional unit of a factor adds to a firms total revenue during a period is called the marginal revenue product (MRP) of the factor. "The theory of wages". d. 4. b. a person who fears computers. 26. C. composite demand. Refer to Scenario 18-1. Medium. d. the Chairman of the Federal Reserve. The optimal amount of labour to hire is illustrated in Figure 12.1. For the 11th worker, the marginal revenue product is $400. b. cost of hiring one more factor of production. c. a decrease in demand for the final product produced by labor An example is the relationship between the demand for train travel and the demand for conductors. c. revenue earned from selling one more unit of product. Is it possible that a firm that follows the marginal decision rule for hiring labor would end up producing a different quantity of output compared to the quantity of output it would choose if it followed the marginal decision rule for deciding directly how much output to produce? Because the demand for factors that produce a product depends on the demand for the product itself, factor demand is said to be derived demand. For a competitive firm that finds it worthwhile to operate rather than shut down, profit maximization requires that b. the demand for a factor of production is a derived demand. As you consider your major, for example, you should keep in mind that some occupations may benefit from technological changes; others may not. 2.3 Applications of the Production Possibilities Model, 4.2 Government Intervention in Market Prices: Price Floors and Price Ceilings, 5.2 Responsiveness of Demand to Other Factors, 7.3 Indifference Curve Analysis: An Alternative Approach to Understanding Consumer Choice, 8.1 Production Choices and Costs: The Short Run, 8.2 Production Choices and Costs: The Long Run, 9.2 Output Determination in the Short Run, 11.1 Monopolistic Competition: Competition Among Many, 11.2 Oligopoly: Competition Among the Few, 11.3 Extensions of Imperfect Competition: Advertising and Price Discrimination, 14.1 Price-Setting Buyers: The Case of Monopsony, 15.1 The Role of Government in a Market Economy, 16.1 Antitrust Laws and Their Interpretation, 16.2 Antitrust and Competitiveness in a Global Economy, 16.3 Regulation: Protecting People from the Market, 18.1 Maximizing the Net Benefits of Pollution, 20.1 Growth of Real GDP and Business Cycles, 22.2 Aggregate Demand and Aggregate Supply: The Long Run and the Short Run, 22.3 Recessionary and Inflationary Gaps and Long-Run Macroeconomic Equilibrium, 23.2 Growth and the Long-Run Aggregate Supply Curve, 24.2 The Banking System and Money Creation, 25.1 The Bond and Foreign Exchange Markets, 25.2 Demand, Supply, and Equilibrium in the Money Market, 26.1 Monetary Policy in the United States, 26.2 Problems and Controversies of Monetary Policy, 26.3 Monetary Policy and the Equation of Exchange, 27.2 The Use of Fiscal Policy to Stabilize the Economy, 28.1 Determining the Level of Consumption, 28.3 Aggregate Expenditures and Aggregate Demand, 30.1 The International Sector: An Introduction, 31.2 Explaining InflationUnemployment Relationships, 31.3 Inflation and Unemployment in the Long Run, 32.1 The Great Depression and Keynesian Economics, 32.2 Keynesian Economics in the 1960s and 1970s, 32.3. d. $900. The price of baked goods falls. On the supply side certain factors of production are fixed in the short run. When an increase in the use of one factor of production increases the demand for another, the two factors are complementary factors of production. Derived demand is applicable for manufacturers goods, such as raw materials, intermediate goods, or machines and equipment. In economics, derived demand is demand for a factor of production or intermediate good that occurs as a result of the demand for another intermediate or final good. 27. In this example the first rises as more labour is employed, and then falls. d. it does not care directly about the number of workers it hires. Foundation Definition. Derived factor demand is the demand for a good or factor of production because of the demand for another good. In other words, it is a demand for a good because another good is derived from it. A great example might be a demand for leather because it is used in the production of another good such as a couch. The demand for labour within an industry, or sector of the economy, is obtained from the sum of the demands by each individual firm. Ms. Lancasters business has expanded, so she hires other accountants to handle the calls. Labor-augmenting technology causes which of the following? Panel (a) shows the increase in the number of calls handled by each additional accountantthat accountants marginal product. In the chapter on competitive output markets we learned that profit-maximizing firms will increase output so long as doing so adds more to revenue than to cost, or up to the point where marginal revenue, which in perfect competition is the same as the market-determined price, equals marginal cost.
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