688 section 13 Factor Markets
George and Martha cultivate less land. This leads to a fall in the marginal product of
labor at any given employment level. Each worker produces less wheat because each has
less land to work with. As a result, the value of the marginal product of labor curve
shifts downward—as in panel (b) of Figure 69.4—and the profit-maximizing level of
employment falls.
Changes in TechnologyIn general, the effect of technological progress on the de-
mand for any given factor can go either way: improved technology can either increase
or decrease the demand for a given factor of production.
How can technological progress decrease factor demand? Consider horses, which
were once an important factor of production. The development of substitutes for horse
power, such as automobiles and tractors, greatly reduced the demand for horses.
The usual effect of technological progress, however, is to increase the demand for a
given factor, often because it raises the marginal product of the factor. In particular, al-
though there have been persistent fears that machinery would reduce the demand for
labor, over the long run the U.S. economy has seen both large wage increases and large
increases in employment, suggesting that technological progress has greatly increased
labor demand.Module 69 AP Review
Check Your Understanding
- Suppose that the government places price controls on the
market for college professors, imposing a wage that is lower
than the market wage. Describe the effect of this policy on the
production of college degrees. What sectors of the economy do
you think would be adversely affected by this policy? What
sectors of the economy might benefit? - a. Suppose service industries, such as retailing and banking,
experience an increase in demand. These industries use
relatively more labor than nonservice industries. Does the
demand curve for labor shift to the right, shift to the left, or
remain unchanged?
b. Suppose diminishing fish populations off the coast of
Maine lead to policies restricting the use of the most
productive types of nets in that area. The result is a decrease
in the number of fish caught per day by commercial fishers
in Maine. The price of fish is unaffected. Does the demand
curve for fishers in Maine shift to the right, shift to the left,
or remain unchanged?Solutions appear at the back of the book.
Tackle the Test: Multiple-Choice Questions
- Which of the following is an example of physicalcapital?
a. manual labor
b. welding equipment
c. farm land
d. lumber
e. education - Which of the following can shift the factor demand curve to the
right?
I. an increase in the price of the good being produced
II. an increase in the factor’s marginal productivity
III. a technological advance
a. I only
b. II only
c. III only
d. I and II only
e. I, II, and III
3. Factor market demand is called a deriveddemand because it
a. derives its name from the Latin factorus.
b. is derived from the market wage received by workers.
c. is derived from the productivity of workers.
d. is derived from the product market.
e. derives its shape from the price of the factor.
4. Which factor of production receives the largest portion of
income in the United States?
a. land
b. labor
c. physical capital
d. entrepreneurship
e. interest