The Market Demand Curve for a Factor
We saw in Chapter 6 that the market demand curve for any good or
service is simply the horizontal summation of all the individual
consumers’ demand curves. With factor demand curves, the same basic
logic applies except for one complication, which we discuss in a moment.
For now, we examine reasons for shifts in the market demand curve for
any factor of production.
Shifts of the Market Factor Demand Curve
To examine shifts in the demand curve for a factor, let’s go back and think
about what is happening at the level of the individual firms. If we know
why individual firms’ factor demand curves shift, we will also know why
the market factor demand curve shifts.
Figure 13-1 illustrated a firm’s demand curve for a factor of production
and showed that the factor’s MRP curve was also the firm’s demand curve
for that factor. Since MRP is equal to MP times MR, there are two reasons
why the demand curve for a factor can shift—because of a shift in the
factor’s MP curve or because of a change in firms’ MR.
A Change in the Factor’s Marginal Product
Anything that changes the factor’s MP curve will also change the MRP
curve in Figure 13-1. Improvements in technology often increase the