In market economies the actual price paid for a factor of production is the result of the interaction of supply and demand, just like in any other market. Now that we understand the basis for the demand and supply of inputs we can study the interaction of these two and how equilibrium prices change due to changes in the economic environment.
To the right we show the market for some input in equilibrium. The equilibrium wage or price paid for the factor is W* and the equilibrium number hired is N*. What changes might affect this equilibrium?
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