How do companies decide how much of their resources to use (such as land, labor, capital, or entrepreneurial ability) to produce a final good and at what price? Businesses calculate their demand for resources based on the demand consumers have for the final goods. For example, if consumer demand for cars (the final good) increases, demand for steel, parts, and other resources used to produce cars also increases.
Review supply and demand in resource markets in the following resources.
When we talk about supply and demand in the labor market, we need to clearly identify the buyers and sellers of labor. If you are looking for a job, you are a supplier or seller of labor: you are represented in the labor supply curve. A business that wants to hire employees buys labor: the company is represented in the labor demand curve. The wage rate is the price or cost of labor.
Review the labor market in the video How Many People to Hire Given the MPR Curve from Khan Academy.
As with our product market analysis of supply and demand, we can also identify shifters of labor demand. Note that a fluctuation in the wage rate leads to a change in the quantity of labor demanded, shown as a movement along the demand curve. A change in any other determinant of labor demand will shift the demand curve.
A labor demand shifter causes a fluctuation in overall labor demand, irrespective of price (wages). Examples of labor demand shifters include changes in:
Review these factors and their impact on labor demand in Wages and Employment in Perfect Competition from Principles of Microeconomics.
Financial markets are important for firms and individuals as they provide financial resources for optimal decision making. In the United States, several formal marketplaces have formed where individuals and groups of corporate investors can trade shares or investment portfolios in various businesses or commodities. Note that economists examine financial markets in more detail in macroeconomics.
Land and Natural Resources
Economists use many of the same methods they use to analyze land and natural resources as they do for the labor market. As with labor, businesses consider land and natural resources as factors of production. The companies that need to use the land and resources as inputs for production are the primary buyers of resources: they drive demand. The sellers of resources are the landowners, corporations, local governments, or federal agencies that own them.