Product Market
is the market for the outputs of production (goods and services)
Factor Market
Is a market for any input into the production process (factors of production - land, labour, capital and enterprise)
Products market
consumers: consumers within the constrain of their income choose what to buy from product market based on the relative price of each good or service.
Demand
Individual demand: is the quantity of the good or service that a consumer is willing and able to purchase at a given price.
Market demand: is essentially the sum of all individual demand - the demand by all consumers for a particular good or service
Influenced by: price, income, tastes, expected future prices, prices of other goods and services, population
The law of Demand
The law of demand states there is an inverse relation between price and quantity
Ceteris Paribus
with other conditions remaining the same; other things being equal
Demand For Labour
PRODUCT FACTOR MARKET
- In most markets, Demand comes from consumers who belong to household
- supply comes from producers, who belong to firms
LABOUR MARKETS
- “backwards” compared to product factor market
- in labour markets, Demand comes from the employer of labour, which area firms
- supply comes from the owners of labour which are households in exchange for wages
*demand for labour is “derived demand”
How to Analyse a Graph
TEEA
- trend/average
- evidence (specific statistics)
- explanation (low modality)
- anomaly (if relevant)
Factors Influencing Demand for Labour
Due to “derived demand”, the amount a firm produces (its output) directly influences the amount of labour the firm demands.
INFLUENCED BY:
Aggregate Demand
- GDP
- Higher GDP = more output = more labour
Industry Conditions
- changing tastes of consumers
Selling Techniques
- Ultimately, the effectiveness of the individuals firm’s
selling techniques determines their output
*Firms decide how to produce their product by combining F.O.D. If capital is cheap relative to labour, firms will choose to substitute away from labour
Productivity of Labour
total output
—————– = productivity of labour
Labour Input
The Economic Problem
an economy’s finite resources are insufficient to satisfy all human wants and needs.
