5.6 Factor Immobility

Question 1

What is factor immobility?

Answer 1

Factor immobility refers to the inability of factors of production to move easily from one use to another, resulting in a barrier to reallocation of resources in the market.

Question 2

What are some reasons that can cause factor immobility?

Answer 2

Factors of production may not be substitutable or the unemployed labor resources may not possess the required skills to move into an area of higher demand, leading to structural unemployment.

Question 3

How can factor immobility result in market failure?

Answer 3

If factor immobility prevents the reallocation of resources needed to increase production and quantity in the market, it can lead to a misallocation of resources, allocative inefficiency, and market failure, where production and quantity do not reach the socially optimum level.