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| | Even in the case of a monopoly, government price controls are almost never desired from an economic perspective. However, they may be popular politically. | | Even in the case of a monopoly, government price controls are almost never desired from an economic perspective. However, they may be popular politically. |
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| − | == Adversity and Suffering == | + | == Derived Demand and Factors of Production == |
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| − | Some concepts in economics are surprising, as as some teachings of Christianity are surprising the first time. An example is that difficulties can actually be blessings. Consider how a tree grows. | + | It is obvious what the "demand" for a good is: it is the desire for the good by the public, in terms of how much the public is willing to pay for it. |
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| | + | "Derived demand" is a firm's demand for a good. The firm's demand is "derived from" the public demand for what the firm makes. "Derived demand" is the demand for something by a ''firm'' based on how much it contributes to the finished goods sold by the firm to the public. |
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| | + | Every firm has "factors of production" in making its goods (or services). There are four basic "factors of production": |
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| | + | *land |
| | + | *capital (money) |
| | + | *labor (workers |
| | + | *entrepreneurship (the efforts of the people who bring the business "to life" by using their creativity and contacts with others) |
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| | + | The owner of the firm looks at its factors of production and must decide the derived demand for each factor, which is known as the "derived factor demand." |
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| | + | A successful owner of a firm must make decisions about how much of each factor of production he needs. How much labor? How much capital (money)? How much land? How much entrepreneurship? To make those decisions in the best way possible, he needs to consider the "derived demand" for each factor: how much does each factor contribute to the finished goods sold by the firm. Put another way, what is the public's demand for the contribution by that factor, on a derived basis? |
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| | + | Let's take an example. Suppose you own a company (a firm). How many workers should you hire? Well, to answer that question you need to know what the demand is for your firm's goods, and then determine how much a new work contributes to those goods. In other words, the number of workers hired depends on the public demand for the goods that the workers helped you produce. |
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| | + | Your demand for workers (labor) is a "derived demand" because it depends on the demand by the public for the goods your workers make. Your demand as owner of the firm is "derived from" the public demand. |
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| | + | == "Strive in Opposition" == |
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| | + | Some concepts in economics are surprising, just as some teachings of Christianity are surprising the first time. An example is how difficulties or "opposition" are what makes a firm or a person stronger. Consider how a tree grows. |
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| | A tree starts out as a tiny seed with apparently little chance of survival. It must find nourishment deep in the soil, and it must defy gravity by growing towards the sky for sunlight. Typically no humans help it. The tree has to make it on its own, and deal with tornadoes, hurricanes, and hostile animals. The tree never “owns” anything. | | A tree starts out as a tiny seed with apparently little chance of survival. It must find nourishment deep in the soil, and it must defy gravity by growing towards the sky for sunlight. Typically no humans help it. The tree has to make it on its own, and deal with tornadoes, hurricanes, and hostile animals. The tree never “owns” anything. |
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| | 7. Mathematically prove (or disprove!) the answer to the question on the midterm exam about P=30/Q. | | 7. Mathematically prove (or disprove!) the answer to the question on the midterm exam about P=30/Q. |
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| − | 8. | + | 8. Derived demand |
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| | 9. | | 9. |