The determinants underlying the factor supply of produced goods, such as capital, are like those of market supply. The determinants underlying the factor supply of human inputs are related to those of market demand. Factor supply determinants fall into three general categories: (1) market supply determinants, (2) market demand determinants, and (3) mobility.

Making Duct Tape

Each of these inputs comes to Mona Mallard through a factor supply relation. The quantity supplied largely depends on the factor price of each resource. However, like any other supply relation, price is not the only influence.

The diversity found in the factors used for production create an equal diversity of factor supply determinants. In particular, most of the ten standard market demand and supply determinants show up as determinants of factor supply. This occurs because some factor supplies, especially for capital goods and land materials, work much like market supply, while other factors, most notably labor and entrepreneurship, involve human consumption choices comparable to those underlying market demand.

How They Work

Duct Tape Employment

Consider how an increase in factor supply and a decrease in factor supply are illustrated in this diagram. Click the [Increase] button to display an increase in factor supply. Obviously the factor supply curve shifts rightward. At each wage, at every wage, more workers are willing and able to supply their services. Now click the [Decrease] button to display a decrease in factor supply. Here the factor supply curve shifts leftward. At each wage, at every wage, fewer workers are willing and able to supply their services.

From Market Supply

• Resource Prices: A change in the prices paid for any input used to produce any of the factors purchased by Mona Mallard affects its factor supply curve. A change in the price of steel used in the production of adhesive application machines affects the factor supply of this resource. A change in the cost of consumer goods purchased by workers also affects the factor supply of labor.


• Technology: Improvements in the technology associated with a factor increase the factor supply. Should the technology of mining quagliminium (a key mineral used to make the sticky adhesive for duct tape) improve, then the factor supply of quagliminium increases.


• Other Prices: Should the prices of other factors that have a substitute or complement relation with the production of the factor input used by Mona Mallard, then the factor supply also changes. Suppose that the price of fork lifts increases. Fork lifts use the same steel that goes into the production of adhesive application machines. As such, the steel is diverted away from adhesive application machines and into fork lift production, causing a decrease in the factor supply of adhesive application machines.


• Expectations: Should resource owners expect higher or lower future factor prices, then they adjust their factor supplies to achieve the highest possible price. If quagliminium suppliers expect higher futures prices, they decrease their current factor supply.


• Number of Sellers: More sellers, mean greater factor supply. An increase in the population of Shady Valley, means that the supply of labor increases.

From Market Demand

• Income: Because more labor means less leisure, and leisure is generally a normal good, an increase in income typically decreases the factor supply of labor. If Chip Merthington wins a $10 million lottery, then he is likely to quit his job working for Mona Mallard.


• Preferences: Because workers receive satisfaction from the job itself, should preferences change, so too does the willingness to supply labor. If Judy Johansen grows disgusted with the drudgery of duct tape production, she too might quit her job with Mona Mallard.


• Other Prices: Leisure is the primary alternative to labor. Should the price of leisure change, the willingness to supply labor also changes. As a potential househusband, Ivan Herwig might be inclined to leave the life of an employed duct-tape worker should the rewards of staying at home increase.

Mobility

• Geographical Mobility: This is the movement of factors from a productive activity in one location to a productive activity in another location. For example, a worker leaves a job in one city and takes a job in another city.


• Occupational Mobility: This is the movement of factors from one type of productive activity to another type of productive activity. For example, a worker leaves a job as an accountant and takes a job as a computer programmer.