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CIRCULAR FLOW: The continuous movement of production, income, and resources between producers and consumers. This flow moves through product markets as the gross domestic product of our economy and is then the revenue received by the business sector in payment for this production. This stream of revenue then flows through resource markets as payments by businesses for the resources employed in production. The payments received by resource owners, however, is nothing more than the income of the household sector. The resource owners of the household sector use this income to purchase goods and services through the product markets, coming full circle to where we began.
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                           FACTOR DEMAND CURVE: A graphical representation of the relationship between the price to a factor of production and quantity of the factor demanded, holding all ceteris paribus factor demand determinants constant. The factor demand curve is one half of the factor market. The other half is the factor supply curve. The factor demand curve indicates the quantity of a factor demanded at alternative factor prices. While all factors of production, or scarce resources, including labor, capital, land, and entrepreneurship, have factor demand curves, labor is the factor most often analyzed. Like other demand curves, the factor demand curve is generally negatively sloped. Higher factor prices are associated with smaller quantities demanded and lower factor prices go with larger quantities demanded.For a firm that hires factors in a perfectly competitive market, factor demand curve is essentially the marginal revenue product curve. Monopsony and other imperfectly competitive firms with some degree of market control over the factor market do not have a clear-cut factor demand curve. In other words, factor price and quantity demanded may or may not be inversely related. | Factor Demand Curve |  |
The exhibit to the right displays a typical factor demand curve. This particular curve is the demand for labor by Waldo's TexMex Taco World, a hypothetical Shady Valley restaurant specializing in the production of Super Deluxe TexMex Gargantuan Tacos (with sour cream and jalapeno peppers).The number of workers is measured on the horizontal axis and the wage paid per worker is measured on the vertical axis. This factor demand curve indicates that Waldo is willing to hire 4 workers at $35 each, 5 workers at $25 each, and 6 workers at $15 each. The wage declines with an increase in the number of workers employed, because extra workers contribute less and less to total production and to total revenue. The most important feature of this factor demand curve is the negative slope. Waldo's TexMex Taco World is willing and able to pay workers a higher wage if they employ fewer workers. However, if they employ more workers, then they are willing and able to pay a lower wage. The primary reason for this inverse relation between wage and quantity demanded is the productivity of the workers and the law of diminishing marginal returns. As Waldo's TexMex Taco World employs more workers IN A GIVEN RESTAURANT, marginal product declines, each additional worker contributes less to total product as the law of diminishing marginal returns kicks in. However, with less production to sell, Waldo's TexMex Taco World generates less revenue. In other words, the law of diminishing marginal returns causes a decline in marginal physical product, and consequently a decline in marginal revenue product. But if workers generate less revenue, then Waldo's TexMex Taco World is willing and able to pay a lower wage. Because the factor demand curve, like other curves, is constructed to reflect the relationship between two variables, factor price and factor quantity demanded, changes in other variables cause the curve to shift. The three most noted curve-shifting factor demand determinants are product price, factor productivity, and prices of other factors.
Recommended Citation:FACTOR DEMAND CURVE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 18, 2025].
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Today, you are likely to spend a great deal of time driving to a factory outlet wanting to buy either a coffee cup commemorating yesterday or a replacement remote control for your television. Be on the lookout for a thesaurus filled with typos.
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Rosemary, long associated with remembrance, was worn as wreaths by students in ancient Greece during exams.
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