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ECON EXAM 3 (C19)
| Question | Answer |
|---|---|
| Factors of Production: | Inputs used to produce goods and services (labor, land, capital) |
| derived demand: | Demand for a factor of production |
| Competitive, Profit-Maximizing Firm: | Labor market is governed by supply and demand; labor demand is a derived demand, Hires workers up to the point where MP of labor value = the wage |
| Firm is Competitive: | Market for apples (where it’s a seller), market for apple pickers (where it’s a buyer) |
| Firm is Profit-maximizing: | Firm’s supply of apples and demand for workers are derived from primary goal of maximizing profit |
| Production Function: | Relationship between the quantity of inputs used to make a good and the quantity of output of that good; becomes flatter as quantity of inputs increases |
| Marginal Product of Labor: | Increase in the amount of output from an additional unit of labor |
| Diminishing Marginal Product: | Marginal product of an input declines as the quantity of input increases; explains shape of the production function |
| Value of the Marginal Product: | Marginal product of an input times the price of the output |
| Marginal Revenue Product: | The extra revenue the firm gets from hiring an additional unit of a factor of production |
| Causes of a Labor-Demand Curve Shift: | Output Price, Technological Change, Supply of Other Factors |
| Output Price: | When the output price changes, the value of the marginal product changes (labor-demand curve shifts) |
| Technological Change: | Advancements can raise MPL, shifting labor-demand curve to the right; labor-saving tech can reduce MPL, shifting labor-demand curve to the left |
| Supply of Other Factors: | Affect the marginal product of other factors |
| Trade-Off Between Work and Leisure: | Labor-supply curve: Reflects how workers’ decisions about the labor-leisure trade-off, Respond to a change in opportunity cost of leisure |
| Income Effect: | Reflects the response of hours worked due to a change in a person’s level of economic well-being |
| Substitution Effect: | Reflects the response of hours worked due to a change in opportunity cost of leisure |
| Causes of a Labor-Supply Curve Shift: | Changes in Preference, Changes in Alternative Opportunities, Immigration |
| Equilibrium Wage: | The wage adjusts to balance labor supply and demand, always equaling the value of workers’ marginal product |
| Shifts in Labor Supply (Increase in Supply): | Decrease in wage, Lower marginal product of labor, Lower value of marginal product of labor, Higher employment |
| Shifts in Labor Demand (Increase in Demand): | Higher wage, No change in marginal product of labor, Higher value of marginal product of labor, Higher employment |
| Capital: | Equipment and structures used to produce goods and services |
| Purchase Price: | Price a person pays to own that factor of production indefinitely |
| Rental Price: | Price a person pays to use that factor for a limited period of time |
| Equilibrium in the Markets for Land and Capital: | As long as the firms using the factors of production are competitive and profit-maximizing, each factor's rental price must equal the value of its MP |
| Equilibrium purchase price depends on: | Current value of the marginal product, Value of the marginal product expected to prevail in the future |
| Linkages Among Factors of Production: | Production factors depend on each other, so diminishing marginal product and changes in one factor’s supply affect all their earnings |
Created by:
IanMcCormick20