5.2 Changes in Factor Demand and Factor Supply
Factor demand shifts with product price, productivity, and other input prices; factor supply shifts with population, preferences, and other jobs' pay.
Anything that changes MRP shifts factor demand. The big three for labor: a change in demand for (or the price of) the product, since labor demand is derived; a change in productivity from technology, training, or more capital to work with; and changes in the prices of substitute or complementary inputs.
Factor supply shifts come from the sellers' side: population growth and demographics, immigration, worker preferences about an occupation, required education or licensing, and the pay available in alternative jobs.
The market graph works like ordinary supply and demand: labor demand shifting right raises both the equilibrium wage and employment; labor supply shifting right raises employment but lowers the wage. A change in the wage by itself is a movement along the curves, never a shift.
Key terms for 5.2
Drag the curves yourself — the fastest way to make 5.2 stick.
Shifting the labor demand curve because the wage changed. A wage change moves you along the curve; only changes in productivity, the product's price/demand, or other input prices shift labor demand.
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