AP Microeconomics Flashcards: Introduction to Factor Markets
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 10 cards to help you master important concepts.
What three things determine an employer's decision to hire a factor of production?
A firm's decision to hire is based on the productivity of the factor, the output price of what is being produced, and the cost of the factor.
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What three things determine an employer's decision to hire a factor of production?
A firm's decision to hire is based on the productivity of the factor, the output price of what is being produced, and the cost of the factor.
What are the three primary factors of production?
The three primary factors of production are labor, capital, and land.
What is a factor market?
A factor market is a market where factors of production (labor, capital, land) are exchanged, and their prices (wages, interest, rent) are determined.
Describe the relationship between the quantity of labor supplied and the wage rate.
The quantity of labor supplied is positively related to the wage rate, meaning as wages rise, more labor is supplied, other things constant.
Explain the relationship between factors of production, firms, and factor prices.
Factors of production respond to factor prices set in the market, while firms' decisions to hire those factors are based on productivity, output price, and the factor's cost.
Why is the demand for a factor of production, such as labor, considered a 'derived demand'?
The demand for a factor is derived from the firm's decision to supply a good in another market, which is based on the factor's productivity and the output price.
What two components are needed to calculate a factor's marginal revenue product (MRP)?
To calculate marginal revenue product, you need to know the productivity of the factor and the output price of the good or service being produced.
Describe the relationship between the quantity of labor demanded and the wage rate.
The quantity of labor demanded is negatively related to the wage rate, meaning as wages rise, firms demand less labor, other things constant.
What are the factor prices corresponding to labor, capital, and land?
The factor prices are wages for labor, interest for capital, and rent for land.
What does the marginal resource cost (MRC) of hiring an additional worker represent?
The marginal resource cost represents the cost of the factor, which for labor is the wage rate.