Chapter 19 Flashcards
factors of production
Inputs used to produce goods and services
(labor, land, capital)
Prices and quantities of Factors of production are determined by..
determined by supply & demand in factor markets.
Markets for the factors of production
Are like markets for goods & services
Except the demand for a factor of production is a derived demand
derived demand…
Derived from a firm’s decision to supply a good in another market
production function:
the relationship between the quantity of inputs used to make a good and the quantity of output of that good
(relationship between inputs and outputs)
Marginal product of labor
MPL= ΔQ / ΔL
The increase in the amount of output from an additional unit of labor
Diminishing marginal product
- The marginal product of an input declines as the quantity of the input increases
- Explains the shape of the production function
Value of the marginal product
VMPL=P x MPL
To maximize profits, hire workers up to the point where
VMPL = W(wage)
Anything that increases P or MPL at each L will increase
VMPL and shift the labor demand curve upward.
Things that Shift the Labor Demand Curve
Changes in the output price, P
Technological change (affects MPL)
The supply of other factors (affects MPL)
mc
MC = W / MPL
Labor-supply curve
Reflects how workers’ decisions about the labor-leisure trade-off
Respond to a change in opportunity cost of leisure
An increase in W is
an increase in the opp. cost of leisure.
What Causes the Labor-Supply Curve to Shift?
- Changes in preferences
- Changes in alternative opportunities
- Immigration
