Factor Markets Overview — AP Microeconomics
1. Unit at a Glance
We follow a logical learning sequence starting with core foundations, then building to specific applications for labor markets, non-labor factors, and finally income distribution. All concepts you learned about supply, demand, and profit maximization in product markets apply here, with small adjustments for how firms purchase inputs instead of selling outputs.
This unit connects abstract firm behavior to real-world questions: why do some workers earn higher wages? How is income distributed across a population? What determines prices for land and capital?
Common Pitfalls
Why: MP only measures additional output, while MRP accounts for the additional revenue the input generates for the firm.
Why: Factor demand is derived demand, meaning it depends entirely on consumer demand for the final product the input produces.