Explain factor demand, production methods and productivity
Connect factor demand to output markets and compare labour-intensive and capital-intensive methods.
Cambridge IGCSE Economics 0455 / IGCSE (9–1) Economics 0987, 2027–2029 Version 1. Apply each model to the stated evidence and qualify conclusions where effects depend on context. Practice is original and self-checked; it is not a Cambridge paper, mark scheme or official grade.
Before you begin
- No prior economics study is assumed. Read the scenario for the decision-maker, the market or economy involved, the time period and the evidence supplied.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Why is demand for labour often derived demand?
What you will learn
- Explain derived demand for factors
- Compare production methods
- Distinguish production from productivity
Factor demand follows product demand
A firm demands labour, land, capital or enterprise because these factors help produce output that customers may buy. Demand can depend on product demand, factor price, availability and productivity.
If demand for a product falls, the need for its inputs may also fall. The effect depends on how easily firms substitute between factors and on production capacity.
Production is output; productivity is output per input
Labour-intensive methods use a relatively high proportion of labour; capital-intensive methods use more machinery or equipment. Choice depends on factor costs, skills, output quality, reliability and scale.
Production measures output; productivity measures output per unit of input over a period. Investment may raise productivity if equipment is suitable, maintained and used effectively, but it can require training and finance.
Pause and explain
A factory's output doubles after it doubles the number of workers. What can be concluded about output per worker?
Worked example
A firm installs packaging equipment and trains its workers. Explain how output and labour productivity could change.
Show the worked solution
- The equipment may increase output capacity.
- Training can help workers use it effectively.
- Productivity rises only if output per labour input increases.
Answer Output may rise, and labour productivity may improve if the equipment and training produce more output per worker. Higher total output alone does not prove productivity rose if labour input also increased.
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Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A bakery faces rising demand for bread. Explain one reason its demand for bakers may increase and one reason it may not rise proportionally.
Give me a hint
Link worker demand to output and consider productivity or substitution.
Compare my reasoning
- More bread may require additional labour.
- Machines, shifts or productivity can change the labour required per loaf.
- Demand for workers depends on the production plan and costs.
Higher bread demand can raise derived demand for bakers, but the increase need not be proportional if the bakery uses spare capacity, machinery or productivity improvements.
Look for these in your work
- Derived demand explained
- Substitution/capacity considered
- Proportionality qualified
A restaurant replaces some manual ordering with tablets. Compare labour-intensive and capital-intensive features and identify one trade-off.
Give me a hint
Classify the relative input mix and consider service quality or cost.
Compare my reasoning
- Tablets increase the role of capital.
- Fewer ordering tasks may reduce labour per customer.
- The restaurant must weigh cost against accessibility and customer service.
The change makes ordering more capital-intensive. It may save labour time, but the restaurant should consider equipment costs, reliability and customers who need staff assistance.
Look for these in your work
- Input mix identified
- Potential benefit stated
- Trade-off included
A factory buys a faster machine and increases output by 20% while workers rise by 10%. Calculate how output per worker changes approximately.
Give me a hint
Compare output and labour growth using the ratio of new to old productivity.
Compare my reasoning
- New relative productivity = 1.20 ÷ 1.10.
- This is about 1.091.
- Productivity per worker rises by about 9.1%.
Output per worker rises by approximately 9.1%, because 1.20/1.10 ≈ 1.091. This assumes the measures cover comparable periods and other inputs are not being compared as labour productivity.
Look for these in your work
- Ratio set up
- Approximation correct
- Measure qualified
Common mistakes
- Treating output and productivity as identical
- Assuming machinery always replaces all workers
- Ignoring factor availability and training
What can you explain now?
Does higher total production always mean higher productivity?
Compare with the explanation
No; input use may have increased too
Productivity compares output with an input measure.
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Make it stick
Does higher total production always mean higher productivity?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.