Ch. 27-29 Flashcards
derived demand
demand for a resource that depends on the demand for the products it helps to produce
marginal product
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)
marginal revenue product
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
marginal resource cost
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
MRP = MRC rule
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.
substitution effect
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
output effect
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
elasticity of resource demand
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.
least-cost combination of resources
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.
profit-maximizing combination of resources
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.
marginal productivity theory of income distribution
The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity
wage rate
a standard amount of pay given for work performed
nominal wage
the dollar amount of the wage paid
real wage
The wage paid to workers measured in terms of real purchasing power.
purely competitive labor market
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
monopsony
A market where there is only one buyer, or in a labor market, there is only one employer
exclusive unionism
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.
occupational licensing
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.
inclusive unionism
industrial unions that includes virtually all available workers in its membership; can put firms under pressure to agree to its wage demands.
bilateral monopoly
Market with only one seller and one buyer
minimum wage
A minimum price that an employer can pay a worker for an hour of labor
wage differentials
the difference between the wage received by one worker or group of workers and that received by another worker or group of workers
marginal revenue productivity
Increase in total revenue from employing 1 more unit of input (resource), ∆ TR / ∆ Input
noncompeting groups
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
investment in human capital
Expenditures on training, education, skill development, and health designed to increase human capital and people’s productivity
compensating differences
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.
incentive pay plan
A compensation structure that ties worker pay directly to performance. such plans include piece rates, bonuses, stock options, commissions, and profit sharing.
economic rent
The price paid for the use of land and other natural resources, the supply of which is fixed (perfectly inelastic)
incentive function
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)
single-tax movement
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.
loanable funds theory of interest
the concept that the supply or and demand for loanable funds determine the equilibrium rate of interest
pure rate of interest
an essential risk-free, long term interest rate that is free of the influence of market imperfections.
nominal interest rate
the interest rate as usually reported without a correction for the effects of inflation; Real Interest Rate + Expected Inflation
real interest rate
Nominal Interest Rate - Inflation Rate
usury laws
restricts the amount of interest that can be charged for credit
explicit costs
Input costs that require an outlay of money by the firm (e.g. rent). Money that actually leaves a firm in the productive process.
implicit costs
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.
economic or pure profit
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”.
normal profit
The accounting profit earned when all resources earn their opportunity cost
static economy
when the basic forces such as resource supplies, technological knowledge, and consumer tastes are constant and unchanging
insurable risks
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.
uninsurable risks
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.
