AP Microeconomics AMSCO Guided Notes
5.2: Changes in Factor Demand and Factor Supply
AP Microeconomics Guided Notes
AMSCO 5.2 - Changes in Factor Demand and Factor Supply
Essential Questions
- How do changes in the labor market affect the supply of workers and the demand for those workers?
A. Changes in Determinants of Labor Supply
1. What are determinants of labor supply and why is understanding them valuable to businesses and governments?
1. Education
1. How does the education level required for a job affect both the labor supply and wages for that job?
2. Immigration
1. How can immigration affect the labor supply in specific sectors of the economy?
3. Working Conditions
1. How do working conditions affect labor supply and what wage adjustment might result from unpleasant or dangerous jobs?
4. Age Distribution
1. Why do economists analyze the age distribution of a population when studying labor supply?
5. Availability of Alternative Options
1. How does the availability of alternative job options affect workers' choices and labor supply?
2. What is a company town and how does its structure limit workers' alternative options?
6. Preferences for Leisure
1. How have preferences for leisure time changed from 1890 to today, and what factors influenced this change?
7. Cultural Expectations and Discrimination
1. How can discrimination and cultural expectations affect labor supply even when workers are qualified for a job?
B. Changes in Determinants of Labor Demand
1. Output Price
1. How does a change in output price affect a firm's incentive to hire or lay off workers?
2. Productivity
1. What factors affect worker productivity and how does productivity influence labor demand?
2. How did computers and the Internet affect labor productivity growth in the United States between 1995 and 2000?
C. Responses to Changes in Incentives
1. The Labor Supply Curve
1. What is the relationship between wages and labor supply shown by the labor supply curve?
2. The Labor Demand Curve
1. Why does the labor demand curve generally slope downward as wages rise?
3. How the Labor Supply Curve Works in Practice
1. What is the substitution effect and how does it explain why workers might work more hours when wages increase?
2. What is the income effect and how can it lead to a backward-bending labor supply curve?
3. What is the labor-leisure tradeoff and how does it explain changes in work hours as wages rise?
D. Putting It All Together
1. How do shifts in labor supply and labor demand curves create a new equilibrium point in the labor market?
2. What happens to wages and quantity of labor when labor demand increases while labor supply remains constant?
Key Terms
determinants of labor supply
determinants of labor demand
labor supply curve
labor demand curve
substitution effect
income effect
labor-leisure tradeoff