Factor Market Aggregation

As with the case of the goods market in Consumer Goods Market Aggregation the market demand and supply for factors of production are essential to find the market clearing price. For example, we test whether the agent can aggregate the individual labor supply curve decisions from market participants who work at a particular wage, following Labor Supply, into a market labor supply curve. On the other side of the market, we test whether the agent can aggregate the labor demand in Deriving Factor Demand from producers into a market labor demand curve. The same tests are essential for all factors of production, including capital.

Elements

1. Aggregation of Capital Demand

   Aggregating firms' linear capital demand curves, as a function or at a given price of capital.

2. Aggregation of Labor Demand

   Combining firms' linear labor demand curves into an aggregate labor demand function.

3. Aggregation of Labor Supply

   Aggregating linear labor supply curves across groups, as a function or at a given wage.

4. Aggregation of Fixed Factor Supply

   Splitting a fixed supply of a factor between two competitive firms so that their values of marginal product are equal, and finding the market rental rate.