Chapter 14

Question 1

Derived Demand

Answer 1

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

Question 2

Marginal Revenue Product

Answer 2

the change in a firm’s total revenue when it employs 1 additional unit of a resource; equal to the change in total revenue divided by the change in the quantity of a resource employed

Question 3

Marginal Resource Cost

Answer 3

amount by which the total cost of employing a resource increases when a firm employs 1 additional unit of the resource; equal to the change in the total cost of the resource divided by the change in the quantity of the resource employed

Question 4

MRP=MRC Rule

Answer 4

principle that to maximiz profit, a firm should employ the quantity of a resource at which its marginal revenue product is equal to its marginal resource cost, the latter being the wage rate in a purely competitive labor market

Question 5

Substitution Effect

Answer 5

reduction in the quantity demanded of the second of a pair of substitute resources that occurs when the price of the first resource falls and causes firms that employ both resources to switch to using more of the first resource and less of the second resource

Question 6

Output Effect

Answer 6

when the price of the first of a pair of substitute resources falls, the quantity demanded of both resources will rise because of the reduction in the price of the first resource so greatly reduces production costs that the volume of output created with the two resources increases by so much that the qd of the second resource increases even after accounting for the subs. effect

Question 7

Elasticity of Resource Demand

Answer 7

measure of the responsiveness of firms to a change in the price of a particular resource they employ or use

Question 8

Least-Cost Combination of Resources

Answer 8

quantity of each resource that a firm must employ in order to produce a particular output at the lowest total cost

Question 9

Profit-Maximizing Combination of Resource

Answer 9

quantity of each resource a firm must employ to maximize its profit or minimize its loss

Question 10

Marginal Productivity Theory of Income Distribution

Answer 10

contention that the distribution of income is equitable when each unit of each resource receives a money payment equal to its marginal revenue product