Ch. 27-29

Question 1

derived demand

Answer 1

demand for a resource that depends on the demand for the products it helps to produce

Question 2

marginal product

Answer 2

additional output produced when 1 additional unit of a resource is employed (quantity of all other resources employed remaining constant); (change in total product)/(change in quantity of resource)

Question 3

marginal revenue product

Answer 3

change in a firm’s total revenue when it employs 1 additional unit of a resource (quantity of all other resources employed remaining constant); equal to change in total revenue divided by change in quantity of resource employed

Question 4

marginal resource cost

Answer 4

the amount the total cost of employing a resource increases when a firm employs 1 additional unit of the resource (the quantity of all other resources employed remaining constant); ΔTC÷ΔQ

Question 5

MRP = MRC rule

Answer 5

The principle that to maximize profit (or minimize losses), a firm should employ the quantity of a resource at which its marginal revenue product (MRP) is equal to its marginal resource cost (MRC), the latter being wage rate in a purely competitive market.

Question 6

substitution effect

Answer 6

the effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming no change in its output

Question 7

output effect

Answer 7

situation in which an increase in the price of one input will increase a firm’s production costs and reduce its level of output, thus reducing the demand for other inputs; conversely for a decrease in the price of a unit

Question 8

elasticity of resource demand

Answer 8

A measure of the responsiveness of firms to a change in the price of a particular resource they employ or use; the percentage change in the quantity of the resource demanded divided by the percentage change in its price.

Question 9

least-cost combination of resources

Answer 9

The quantity of each resource a firm must employ in order to produce a particular output at the lowest total cost; the combination at which the the ratio of the marginal product of a resource to its marginal resource cost is the same for the last dollar spent on each of the resources employed.

Question 10

profit-maximizing combination of resources

Answer 10

The quantity of each resource a firm must employ to maximize its profit or minimize its loss; The combination in which the marginal revenue product of each resource is equal to its marginal resource cost.

Question 11

marginal productivity theory of income distribution

Answer 11

The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity

Question 12

wage rate

Answer 12

a standard amount of pay given for work performed

Question 13

nominal wage

Answer 13

the dollar amount of the wage paid

Question 14

real wage

Answer 14

The wage paid to workers measured in terms of real purchasing power.

Question 15

purely competitive labor market

Answer 15

A resource market in which many firms compete with one another in hiring a specific kind of labor, numerous equally qualified workers supply that labor, and no one controls the market wage rate

Question 16

monopsony

Answer 16

A market where there is only one buyer, or in a labor market, there is only one employer

Question 17

exclusive unionism

Answer 17

artificially restricting labor supply by having restrictive membership policies. by excluding workers form unions and therefore from the labor supply, craft unions succeed in elevating wage rates.

Question 18

occupational licensing

Answer 18

the laws of state or local governments that require that a worker satisfy certain specified requirements and obtain a license from a licensing board before engaging in a particular occupation.

Question 19

inclusive unionism

Answer 19

industrial unions that includes virtually all available workers in its membership; can put firms under pressure to agree to its wage demands.

Question 20

bilateral monopoly

Answer 20

Market with only one seller and one buyer

Question 21

minimum wage

Answer 21

A minimum price that an employer can pay a worker for an hour of labor

Question 22

wage differentials

Answer 22

the difference between the wage received by one worker or group of workers and that received by another worker or group of workers

Question 23

marginal revenue productivity

Answer 23

Increase in total revenue from employing 1 more unit of input (resource), ∆ TR / ∆ Input

Question 24

noncompeting groups

Answer 24

collections of workers in the economy who do not compete with each other for employment because the skill and training of the workers in one group are substantially different from those of the workers in other groups

Question 25

investment in human capital

Answer 25

Expenditures on training, education, skill development, and health designed to increase human capital and people’s productivity

Question 26

compensating differences

Answer 26

A difference in wages that arises to offset the non-monetary characteristics of different jobs. Why garbage disposers earn more than someone with the same skills.

Question 27

incentive pay plan

Answer 27

A compensation structure that ties worker pay directly to performance. such plans include piece rates, bonuses, stock options, commissions, and profit sharing.

Question 28

economic rent

Answer 28

The price paid for the use of land and other natural resources, the supply of which is fixed (perfectly inelastic)

Question 29

incentive function

Answer 29

The inducement that an increase in the price of a commodity gives to sellers to make more of it available (and conversely for a decrease in price), and the inducement that an increase in price offers to buyers to purchase smaller quantities (and conversely for a decrease in price)

Question 30

single-tax movement

Answer 30

the political efforts by followers of Henry George (1839-1897) to impose a single tax on the value of land and eliminate all other taxes; economic rent could be heavily taxed, or even taxed away, without diminishing the available supply of land or, therefore, the productive potential of the economy as a whole.

Question 31

loanable funds theory of interest

Answer 31

the concept that the supply or and demand for loanable funds determine the equilibrium rate of interest

Question 32

pure rate of interest

Answer 32

an essential risk-free, long term interest rate that is free of the influence of market imperfections.

Question 33

nominal interest rate

Answer 33

the interest rate as usually reported without a correction for the effects of inflation; Real Interest Rate + Expected Inflation

Question 34

real interest rate

Answer 34

Nominal Interest Rate - Inflation Rate

Question 35

usury laws

Answer 35

restricts the amount of interest that can be charged for credit

Question 36

explicit costs

Answer 36

Input costs that require an outlay of money by the firm (e.g. rent). Money that actually leaves a firm in the productive process.

Question 37

implicit costs

Answer 37

Input costs that do not require an outlay of money by the firm (e.g. interest forgone on money used). The opportunity costs associated with a firm’s use of resources that it owns.

Question 38

economic or pure profit

Answer 38

The total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called “pure profit” and “above-normal profit”.

Question 39

normal profit

Answer 39

The accounting profit earned when all resources earn their opportunity cost

Question 40

static economy

Answer 40

when the basic forces such as resource supplies, technological knowledge, and consumer tastes are constant and unchanging

Question 41

insurable risks

Answer 41

an event that would result in a loss but whose frequency of occurrence can be estimated with considerable accuracy. insurance companies are willing to sell insurance against such losses.

Question 42

uninsurable risks

Answer 42

an event that would result in a loss and whose occurrence is uncontrollable and unpredictable. insurance companies are not willing to sell insurance against such a loss.