these levels of aggregation because the amount of factor mobility is
different in each case. A given factor of production is often very mobile
between firms within a given industry, less mobile between different
industries, and even less mobile from the perspective of the entire
economy. For example, an electrician may be very mobile between firms
and industries within a given city, and reasonably mobile between
provinces, but it may be very difficult for that electrician to move to
another country to find a job. In this section, we examine the relationship
between factor mobility and the supply of factors of production. We start
with the highest level of aggregation.
The Supply of Factors to the Economy
At any one time, the total supply of each factor of production is given. For
example, in each country, the labour force is of a certain size, so much
arable land is available, and there is a given stock of physical capital.
However, these supplies can and do change. Sometimes the change is
very gradual, as when climate change slowly turns arable land into desert
or when medical advances reduce the rate of infant mortality and increase
the rate of population growth, thereby eventually increasing the supply of
adult labour. Sometimes the changes can be more rapid, as when a boom
in business activity brings retired persons back into the labour force.
Physical Capital
The capital stock in a country is the existing machines, factories, and
equipment. Capital is a manufactured factor of production, and its total