chapter 11

Question 1

market for labor

Answer 1

affects all of us.
Consumers are the suppliers (of labor) and
(Firms) are demander labor

Question 2

demand labor

Answer 2

short run

elated to market’s demand for firms product

Question 3

Do firms get satisfaction from consuming labor?

Answer 3

Consumers buy to get satisfaction.

Question 4

Derived Demand

Answer 4

Demand for labor related to market’s demand for firms product

Question 5

Marginal Product of Labor

Answer 5

Additional output from each additional unit of labor
Our first employee moves output from 0 to 100
After we hire employee #4 our marginal product of labor is still increasing (positively) but increasing at a decreasing rate!

Question 6

value of marginal product of labor (VMPL)

Answer 6

We are adding the value in terms of revenue that each worker adds
How much each worker contributes of revenue. The contribution of an additional worker to a firm’s revenues

Equal to MP x Output Price

Question 7

firm maximizes profits by

Answer 7

(expanding its workprice until the marginal product of labor x price = VMPL = wage)

In choice of how much to produce
MR = MC
In choice of how many workers to hire
MP x P = W or VMPL = W

Question 8

How much work vs. how much leisure

opportunity cost of Leisure

Answer 8

you should consume leisure up to the point at which the marginal benefit equals the marginal cost, where the marginal cost is the wage rate

Marginal benefit of leisure = Wage

Question 9

Shifts of the labor demand curve

Answer 9

1. Price of the good the firm produces
2. Technology used in production

A movement along the demand curve would be caused only ba change in the wage rate (price of labor)

Question 10

labor-saving technology

Answer 10

is a type of technology that substitutes for existing labor inputs, reducing the marginal product of labor so the labor demand curve shifts to the left.

Question 11

labor- complementary technology

Answer 11

is a technology that complements existing labor inputs, increasing the marginal product of labor

ex: workers can now pack many more boxes because of technology. such a change in the labor demand curve to the right

Question 12

what affects shifts in labor supply

Answer 12

!. population changes

2. change in worker preferences and tastes
3. opportunity costs

Question 13

Population changes

Answer 13

The more people there are, the greater the supply of labor, so the labor supply curve shifts to the right

Question 14

Change in worker preferences and tastes

Answer 14

E.x. Greater proportion of women in the labor force

E.x. Greater proportion of older workers wanting to continue working rather than retire

Question 15

Opportunity costs

Answer 15

If the alternatives to working change overall, or for a particular industry or firm, the labor supply curve will shift

E.x. the Affordable Care Act could cause some workers to leave the labor force because they can get insurance coverage outside of employment

Question 16

Why are wages different?

Answer 16

1. Differences in human capital- Each person’s investment in themselves, leading to the ability to be more productive
   EX: education, job training, health
2. Differences in compensating wages- Wage premiums necessary to attract workers into occupations that have unattractive aspects
3. The nature and extent of discrimination in the job market

Question 17

human capital

Answer 17

is each persons stock of skills for producing output or economic value.

Question 18

Taste-based discrimination

Answer 18

Discrimination that arises due to people’s prejudices against a group of people
Can originate with employers, other employees, or customers
EX: a bigoted employer chooses not to hire a hispanic person based on their culture
The company is forgoing potential profit by not hiring an employee because of bigotry

Question 19

Statistical Discrimination

Answer 19

Discrimination that arises due to expectations about a group of people
Employers cannot know a potential workers productivity with certainty
Might use characteristics as a proxy for productivity (gender, race, etc)
EX: an insurance company offers a lower rate to females with a higher

Question 20

Skill-biased technological changes

Answer 20

Increase the productivity of skilled workers relative to that of unskilled workers

Question 21

value of marginal product of Physical Capital (VMPK)

Answer 21

is the contribution of an additional unit of physical capital to a firm’s revenue

Lasting input into the production process

Question 22

Land

Answer 22

Includes other natural resources

Question 23

rental price

Answer 23

good is the cost of using that good for some period of time