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AP® Microeconomics · Unit 5 · Topic 5.1

Introduction to Factor Markets: Topic Checklist (Microeconomics 5.1)

Specific “I can…” statements for factor markets, MRP and MRC, each linked to the guide section and practice question that shows whether you can really do it.

Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.

Understanding

  • I can explain how a factor market differs from a product market and say who buys and who sells in each. (Guide: “Two kinds of market”, Figure 1; Practice Q1)
  • I can name the factor price for labour, capital and land, and explain how factor prices act as incentives and signals. (Guide: “Factors and their prices”)
  • I can explain why the demand for labour is a derived demand. (Guide: “Derived demand”; Practice Q6(b))
  • I can name the three things a firm’s hiring decision depends on: productivity, output price and the cost of the factor. (Guide: “Derived demand”; Practice Q7)

Calculation and graphing

  • I can calculate MRP for a price taker as MP × P and check it as the change in total revenue. (Guide: Worked example 1; Practice Q2)
  • I can calculate MRP for a firm that must cut its price to sell more, and explain why it is below MP × P. (Guide: Worked example 2; Practice Q5, Q7)
  • I can calculate MRC from a total cost table and explain why it equals the wage for a wage taker. (Guide: “Marginal resource cost”; Practice Q4)
  • I can draw a labour market graph with the wage on the vertical axis, quantity of labour on the horizontal axis, and the equilibrium marked. (Guide: Figure 3; Practice Q6)

Reasoning

  • I can explain why the quantity of labour demanded falls as the wage rises, using falling MRP. (Guide: “The labour market: demand and supply”; Practice Q6(b))
  • I can explain why the quantity of labour supplied rises as the wage rises. (Practice Q3, Q6(c))
  • I can decide whether one more worker adds more to revenue than to cost by comparing MRP with MRC. (Guide: Worked example 1(d); Practice Q7(c))
  • I can explain why a change in the wage is a movement along the labour demand and supply curves, not a shift. (Guide: “Movement, not shift”; Practice Q3)

All ticked? Move on to Topic 5.2, Changes in Factor Demand and Factor Supply, or return to the course roadmap.

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