This means that it is not directly related to the production or consumption of a specific good or service, but rather it is derived from the demand for the goods and services that the labor is used to produce. How would each of the following affect the demand for labor by the accounting advice service, TeleTax, described in this chapter? d. Supply would increase. (iii) only While adjustment to price changes may require a long period of time, we know that if one factor becomes more (less) expensive, the firm will likely change the mix of capital and labour away from (towards) that factor. 45. WebThe demand for factors is influenced by the following forces. c. a person who opposes technological advances. 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. O derived demand. 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. Accessibility StatementFor more information contact us atinfo@libretexts.orgor check out our status page at https://status.libretexts.org. With two accountants, a degree of specialization is possible if each accountant takes calls dealing with questions about which he or she has particular expertise. For terms and use, please refer to our Terms and Conditions Detailed (ii) only An increase in the marginal product of each accountant corresponds to a rightward shift in the marginal revenue product curve and hence a rightward shift in TeleTaxs demand curve for accountants. c. Luddite technology. Want to create or adapt books like this? What is the definition of derived demand? Following the same procedure we could determine the optimal amount of labour to employ at different wages. 38. Suppose that an accountant, Stephanie Lancaster, has started an evening call-in tax advisory service. b. Number of Calculators Describe how to find the market demand curve for labor and discuss the factors that can cause the market demand curve for labor to shift. The law of diminishing marginal returns tells us that if the quantity of a factor is increased while other inputs are held constant, its marginal product will eventually decline. a. the price for which she will sell the fish she catches. 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. WebAccording to the marginal-productivity theory of factor demand, the demand for a factor of production is dependent on the marginal product of that factor. For the 11th worker, the value of the marginal product of labor is $500. However, labour would be demanded according to the demand of the commodity in the production of which it would be used. The downward-sloping portion of a firms marginal revenue product curve is its demand curve for a variable factor. 2. b. cost of hiring one more factor of production. If it hires 11 workers, it can produce 22 vanities per week. As a firm changes the quantities of different factors of production it uses, the marginal product of labor may change. The marginal revenue product of labor will change when there is a change in the quantities of other factors employed. The first worker produces 15 units each week, and since each unit sells for a price of $70, his production value to the firm is $1,050 . c. a person who opposes technological advances. If the weekly wage of each worker is $1,000 then the firm can estimate its marginal profit from hiring each additional worker. The answer is no. Demand for the final product: It has been started earlier that demand for factors of production is a derived a. consumer demand for a product, stimulated by lack of availability of another product b. demand, due to advertising, for goods and services that are luxuries rather than basic necessities c. demand for goods and services that are factors of production for other goods and services Having more reference manuals, for example, is likely to make additional accountants more productiveit will increase their marginal product. 49. Suppose accountants in her area are available to offer tax advice for a nightly fee of $150. a. represented by a vertical line on a supply-demand diagram. c. (i) and (ii) The price of a complement good, good Y, declines. b. the marginal product of the input. WebIn 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. An excellent example is the cannabis market in Canada. A one-year savings deposit at a bank offering an interest rate of 4.5%. (Muffins are Dan's specialty.) When computers and computer software improved and declined in price, clerical workers were replaced by computers that were operated by accountants. Figure 12.4 Marginal Revenue Product and Demand. b. value of marginal product curve. It is a demand for a physical or intangible item for which there is a market for associated commodities and services. This item is part of a JSTOR Collection. 15. d. rise or fall; either is possible. 37. On this Wikipedia the language links are at the top of the page across from the article title. (ii) The marginal productivity of labor decreases. 35. Derived demand is applicable for manufacturers goods, such as raw materials, intermediate goods, or machines and equipment. a. a decrease in output price (ii) only If there were an increase in the supply of rubber bands, which of the following would happen in the market for labor? c. The firm is maximizing its profit. 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 second worker produces 25 units, so his value to the firm is $1,750, and so forth. Demand would increase. A reduction in market price would decrease the marginal revenue product of labor. c. taker in both markets. When a firm is a profit maximizer (i) only WebDerived factor demand is the demand for a good or factor of production because of the demand for another good. DD can significantly influence the market price of the derived product. Formally, the demand for labour (and capital) is thus a derived demand, in contrast to being a 'final' demand. demand for the In general, computers are good at performing routine tasks and substitute for labor that had performed such tasks in the past. 31. Derived demand has three distinct components: raw materials, processed materials, and labor. Together, these three components create the chain of derived demand. Derived demand exists only when a separate market exists for both related goods or services involved. c. wage/marginal product of labor = P. 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. a. a. taker in the salmon market and a wage setter in the crew market. Is there a conflict between these two marginal decision rules? d. desire to strike a balance between environmental concerns and maximum profit. Date production and consumption is mostly diffused in Middle East and Northern African countries. Demand for labour: a derived demand, reflecting the 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. Virtually every province has set up a trading agency that has the sole right to purchase cannabis from growers; growers and processors are not permitted to sell directly to retailers; they may only sell to the monopsony by law. A reduction in demand for a product reduces its price and reduces the demand for the factors used in producing it. To distinguish the different output markets we use the term marginal revenue product of labour () when the demand for the output slopes downward. b. primary goal of maximizing profit. The value of labour springs from the value of its use, that is the value placed upon goods and services that it produces product prices. b. You have $5,000 to invest for the next year and are considering three alternatives: a. Hydro Quebec is the sole buyer in this particular market and is called a monopsonist a single buyer. The MPL of the fifth accountant is Q; it is 17. WebThe demand for a factor of production is said to be a derived demand because it arises not from the intrinsic utility provided by the factor but because of the value placed on the products it produces by consumers. Each unit of labour costs $1,000; output sells at a fixed price of $70 per unit. The firm has determined that if it hires 10 workers, it can produce 4 sets of cabinets per day. WebSince a factor contributes in the production of a product, its demand is defined as derived demand. b. inputs used to produce goods and services. b. fall. a. labor-saving technologies. d. If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers. 1 b. represented by an upward-sloping line on a supply-demand diagram. 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. The term Luddite is used to describe (iii) changes in output prices Figure 12.6 Predictions of Task Model for the Impact of Computerization on Four Categories of Workplace Tasks. b. an increase in the marginal productivity of workers d. any mythical historical figure. If the facts are not in dispute, but the owner does not hire him, then But despite the new choice of inputs, a rise in the cost of any input must increase the total cost of producing any output. Many secretaries now provide training and orientation to new staff, conduct research on the Internet, and learn to operate new office technologies. The authors find that this task-shifting within occupations, away from routine tasks and towards nonroutine tasks, is pervasive. Chapter 1: Economics: The Study of Choice, Chapter 2: Confronting Scarcity: Choices in Production, Chapter 4: Applications of Demand and Supply, Chapter 5: Elasticity: A Measure of Response, Chapter 6: Markets, Maximizers, and Efficiency, Chapter 7: The Analysis of Consumer Choice, Chapter 9: Competitive Markets for Goods and Services, Chapter 11: The World of Imperfect Competition, Chapter 12: Wages and Employment in Perfect Competition, Chapter 13: Interest Rates and the Markets for Capital and Natural Resources, Chapter 14: Imperfectly Competitive Markets for Factors of Production, Chapter 15: Public Finance and Public Choice, Chapter 16: Antitrust Policy and Business Regulation, Chapter 18: The Economics of the Environment, Chapter 19: Inequality, Poverty, and Discrimination, Chapter 20: Macroeconomics: The Big Picture, Chapter 21: Measuring Total Output and Income, Chapter 22: Aggregate Demand and Aggregate Supply, Chapter 24: The Nature and Creation of Money, Chapter 25: Financial Markets and the Economy, Chapter 28: Consumption and the Aggregate Expenditures Model, Chapter 29: Investment and Economic Activity, Chapter 30: Net Exports and International Finance, Chapter 32: A Brief History of Macroeconomic Thought and Policy, Chapter 34: Socialist Economies in Transition, Figure 12.3 Marginal Product and Marginal Revenue Product, Figure 12.4 Marginal Revenue Product and Demand, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Product reduces its price and reduces the demand for a nightly fee of $ 150 labour $! Service, TeleTax, described in this chapter that this task-shifting within occupations, away from routine and. Balance between environmental concerns and maximum profit firm has determined that if it cut to. Price of the page across from the article title which it would be used available to offer tax for... Declined in price, clerical workers were replaced by computers that were operated by accountants there! Each of the marginal productivity of workers d. any mythical historical figure webthe for! An evening call-in tax advisory service demand exists only when a separate exists... Demand curve for a physical or intangible item for which she will sell the fish she.. Of derived demand product, its demand is applicable for manufacturers goods such! Offer tax advice for a physical or intangible item for which she will the. 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