Factor Markets

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Session Overview


Earlier in the semester, we discussed the labor supply decisions made by consumers when deciding how much they should or should not work. However, firms have the power to decide how many workers to hire. This lecture focuses on the operation of firms in the factor markets that supply the factors (labor and capital) they use in production.

A firm made the decision to hire these workers. In this lecture, discover the determinants of this decision! Image courtesy of Remko Tanis on Flickr.

Keywords: Input markets; labor supply; monopsony; expenditure curves; wage discrimination; empirical economics.

Session Activities


Before watching the lecture video, read the course textbook for an introduction to the material covered in this session:

  • [R&T] Chapter 14, "Imperfectly Competitive Markets for Factors of Production."
  • [Perloff] Chapter 15, "Factor Markets and Vertical Integration." (optional)

Lecture Videos


Check Yourself

Concept Quiz

This concept quiz covers key vocabulary terms and also tests your intuitive understanding of the material covered in this session. Complete this quiz before moving on to the next session to make sure you understand the concepts required to solve the mathematical and graphical problems that are the basis of this course.


Further Study

These optional resources are provided for students that wish to explore this topic more fully.

Other OCW and OER Content

14.64 Labor Economics and Public Policy, Fall 2009. MIT OpenCourseWare An in-depth course on labor economics.


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