Ch 17 Flashcards
Input Market
land, labor, capital (LLK); assume perfect competition in the input and output markets
Derived Demand
the demand for inputs is dependent upon demand for outputs that those inputs use to produce
Production Function
how much output do our inputs produce
MPL
marginal product of labor; the additional output produced by one additional unit of labor
Marginal Revenue Product of Labor (MRPL)
the additional revenue produced by an additional unit of labor; MRPL= MPL*P
PC firms has two profit maximizing conditions
- firms will produce output until P=MC which is the same as MC=MR
- firm will hire labor units until MRPL=W (if MR is high then W hire unit)
Change in output price
if P increases then MRPL also increase and increased D for labor; if P decreases then decreased D for labor
Technological change
tech improvement: increased MPL (labor augmenting) then increased D for labor; decreased demand for labor replaces labor ie. toll booths high speed lanes (labor saving)
Supply of other factors
quantity available of one factor can affect MP of other factors (ie. decrease in supply of paint brushes decreases MPL of painting company thus decreasing the demand for labor)
Supply of labor
people face trade off between work and leisure
Income effect
dominates when supply curve bends backwards; household can afford more leisure time and offers less labor as wage increases
Substitution effect
dominates when we have an upward sloping supply curve; as wage increases, households increase quantity supplied (gives up leisure) opportunity cost of leisure increases; we usually see substitution effect dominate
Shifts in labor supply
shift occur when people change the amount they want to work at a given wage
- changes in taste or cultural preferences (when women enter the workforce)
- changes in alternative opportunities (changes in wages from one industry to another)
- immigration (can refer to movement of workers from one region to another or from one country to another)
