Chap. 10 - Resource Markets Flashcards
The _______ for an input or resource is derived from the ______ for the good or service that uses the resource.
Demand
Demand
If demand for cars increase what would that do to steel?
An increase in the demand for steel.
What is Marginal Revenue Product and Marginal Resource Cost?
The additional revenue or cost from using one more unit of input.
What is the equation for Marginal Revenue Product?
Change in TR/Change in inputs or
Marginal Product * Marginal Revenue
What is the equation for Marginal Product?
Change in Q or Total Product/change in input
What does Marginal Revenue Product tell us?
How much this additional input is worth to the firm because of the additional revenue that it generates.
What is the equation for Marginal Resource Cost?
Change in TC/Change in input
What are some things that can increase the MRP of the firms laborers?
Price (nothing to do with workers, but good to note)
Human Capital - Education for workers
Capital - Machinery/Technology increases efficiency
What is a monopsony?
There is only one buyer in the market, it could be there is only one employer hiring laborers.
For consumers to maximize utility they purchase goods and services which yield what? So the decision rule if the consumer is buying two goods is what?
Highest Marginal Utility per Dollar, MU1/P1
The ratio of the marginal utility per dollar for each good should be equal to each other
MU1/P1 = MU2/P2
To determine the cost minimizing combination of resources to produce a given level of output a firm should do what?
Determine that which gives them the greatest marginal product per dollar, at the point of cost minimization the ratio of marginal products divided by the resource price (w) will be the same, MP1/w1 = MP2/w2
What does MRP/MRC tell us?
For example, if the MRP/MRC is $2, then the firm is generating two dollars of revenue for every dollar of cost of the resource.
Workers are utility maximizers and they experience a trade-off between work and leisure. Because of this trade off it could result in what?
A backward bending supply curve at higher wages. It is possible when wages get high enough that the quantity supplied of labor declines with further wage increases.
Describe the graph for the backward bending supply curve?
On the y axis is wage rate, on the x axis there is Q of Labor Supplied. The Supply Curve has a positive relationship up to a certain point and then starts to bend backwards.
if the income effect is greater than the substitution effect, the individual will reduce the quantity of labor supplied as the wage rate rises. In other words, a doctor or someone making a high wage rate may ask: “What is the value of having more income if I don’t have time to enjoy it?”
