5.2 Changes in Factor Demand and Factor Supply

Explain (using graphs where appropriate) firms’ and factors’ responses to changes in incentives and constraints.

• Changes in the determinants of labor demand, such as the output price and the productivity of the worker, cause the labor demand curve to shift.
• Changes in the determinants of labor supply (such as immigration, education, working conditions, age distribution, availability of alternative options, preferences for leisure, and cultural expectations) cause the labor supply curve to shift.
• Enduring understanding PRD-4: Factor prices provide incentives and convey information to firms and factors of production.