Up to this point we have focused on the demand for factors, which determines the quantities demanded of labor, capital, or land by producers as a function of their factor prices. What about the supply of factors?

In this section we focus exclusively on the supply of labor. We do this for two reasons. First, in the modern U.S. economy, labor is the most important factor of production, accounting for most of factor income. Second, as we’ll see, labor supply is the area in which factor markets look most different from markets for goods and services.