13. 2 The Supply of Factors
When we consider the supply of any factor of production, we can
consider supply at three different levels of aggregation:
The amount supplied to the economy as a whole
The amount supplied to a particular industry
The amount supplied to a particular firm
To illustrate, consider your decision to seek employment—to supply your
labour services to the labour market. You must make three general
decisions. First, you must decide whether to supply your labour services
at all, the alternative being not to seek any kind of employment. Your
decision will influence the overall supply of labour to the economy
(though only by a tiny amount). Second, once you have decided to supply
your labour services, you must choose an industry and occupation. Your
decision to seek employment in the telecommunications industry rather
than the auto manufacturing industry influences the economy’s allocation
of labour across industries. Third, once you have decided to seek
employment in a particular industry, you must choose which firms in that
industry appeal to you. Your decision influences the allocation of labour
across firms.
The elasticity of supply of a factor—how much the quantity supplied
responds to changes in its price—will normally be different at each of
