ABSTRACT

The lectures on marginal cost, production functions, and technology have many implications about the demand for factors of production. In the next few lectures we examine systematically this “derived” factor demand, ultimately derived, that is, from the demand for final products (in turn derived, as in Lecture 10, from the demand for household-produced commodities). Derived demand analysis can be used to show the effects on factor prices and uses of changes in product markets—in excise taxes, production functions, or the amount of competition—and of changes in factor supply conditions—an increased stock of capital or labor, the development of strong trade unions, or reduced subsidies to graduate education in the sciences. We begin by analyzing the derived demand of a single firm and proceed to the derived demand of an industry and a country.