chapter 13

Question 1

factor demand

Answer 1

• derived demand

- labour services are inputs to prodution of other goods

Question 2

how to determine wage

Answer 2

• link production of goods and services with demand for labour

Question 3

marginal revenue product

Answer 3

• additional output each worker produces
• diminishing marginal production of labour
  MRP = MP x MR
  MRP = change in total revenue/change in resource quantity
• will hire until MR factor = MC factor

Question 4

special case of competitive goods and factor makets, condition of MRP simplifies to

Answer 4

• factor price, marginal product and product price –> w = MP x p

Question 5

firm’s demand curve for a factor

Answer 5

• marginal product curve is downward sloping bc law of diminishing returns
• firm adds further units of variable factor to give quantity of fixed factor, marginal product of variable factor decreases

Question 6

to decide to hire another worker:

Answer 6

• firm must compare extra revenue to extra cost of worker –> up until MRP = MFC

Question 7

MRP curve shows

Answer 7

• how many units of factor will be hired at different prices

- demand for labour

Question 8

supply at 3 levels of aggregation

Answer 8

• 3 decisions
• to supply labour at all
• if yes, which industry to apply
• which firms to apply t o

Question 9

labour force

Answer 9

number of people willing to work

Question 10

supply of labour

Answer 10

• total number of hours people are willing to work

Question 11

supply of labour depends on

Answer 11

• pop of a country varies
• labour force participation: proportion of total population that is wiling to work
• hours per person

Question 12

demand shift

Answer 12

• increase in demand shifts curve right
• rise in eqm factor price rises and eqm factor price rises and eqm quantity increases
• total income earned by factor increases
• shortage of workers

Question 13

supply shift

Answer 13

• increase in supply shifts supply curve right
• increase in eqm factor price falls and eqm quantity increases
• total income falls if demand for factor is inelastic and rises if demand for factor is elastic

Question 14

examples of changes in labour supply

Answer 14

• changes in preferences and social norms
• changes in population
• changes in opportunities
• changes in wealth