Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Market analysis- 220 > Chapter 5 from the book: the demand for labor > Flashcards

Chapter 5 from the book: the demand for labor Flashcards

1
Q

is there a lot of influence from the government in the labor market?

A

ye bruv

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what do all government regulations that benefit employees in the market have in common?

A

they in- crease employers’ costs of hiring workers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is the fundamental assumption of labor demand theory?

A

firms seek to maximize profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what are the two most important things to be noted about firms’ constant search of profit maximization?

A

First, a firm can make changes only in variables that are within its control

Second, our theory must address the small (“marginal”) changes that must be made almost daily

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

when will the profit-maximizing firm want to expand output by one unit?

A

if the added revenue from selling that unit is greater than the added cost of producing it

As long as the marginal revenue from an added unit of output exceeds its marginal cost, the firm will continue to expand output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

when will the profit-maximizing firm want to contract output?

A

whenever the marginal cost of production exceeds marginal revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

when are profits maximized?

A

when output is such that marginal revenue equals marginal cost

MRPL = MEL

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what are the two inputs that firms will use to have gyu outputs?

A

labor and capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

how do you find the marginal income associated with a unit of input?

A

the change in physical output produced * MR generated per unit of physical output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

marginal product of labor

A

the change in physical output produced

the change in physical output (Delta Q) produced by a change in the units of labor (Delta L)

MPL = Delta Q / Delta L

basically, the change in output produced by a change in amount of workers

the change in the (physical) output of a firm when it changes its employment of labor by one unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

the input’s marginal revenue product

A

the marginal income produced by a unit of input

ex: if the presence of a tennis star increases attendance at a tournament by 20,000 spectators, and the organizers net $25 from each additional fan,

the marginal income produced by this star is equal to her marginal product (20,000 fans) times the marginal revenue of $25 per fan

Thus, her marginal revenue product equals $500,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

marginal product of capital

A

the change in output associated with a one-unit change in the stock of capita

MPK = Delta Q/ Delta K

basically, the change in amount of output produce cause by a change in money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what is the marginal revenue in Purely Competitive Market?

A

the price of one unit to sell

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Firm’s marginal revenue product of labor,

or MRPL formula

A

MRPL = MPL * MR

MRPL = MPL * P

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

firm’s marginal revenue product of capital (MRPK)

or MRPK formula

A

MRPK = MPK * MR

MRPK = MPK * P

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

marginal expense of labor (MEL) (C)

A

changes in expenses associated with a change in labor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is a firm’s marginal expense of labor (MEL) (C) if it operates in a competitive labor market

it has no control over the wages that must be paid (it is a “wage taker”

A

MEL is simply equal to the market wage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

the short run varies from firm to firm

what does every firm need to decide in their particular short runs?

A

the firm needs only to decide whether to alter its output level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

when is labor’s marginal product positive?

A

when output increases as labor is added

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

law of diminishing marginal returns in marginal product of labor

A

as employment expands, each additional worker has a progressively smaller share of the capital stock to work with

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

when are profits maximized in a competitive market?

A

MPL * P = W

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

how do you find the profit maximization point in units in a competitive market

A

MPL = W/P

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

if an individual’s marginal product of labor (MPL) depends on the firm’s capital stock,

what would an increase in capital stock cause to the MPL?

A

the entire MPL schedule would shift up

24
Q

what does the demand curve (or schedule) for an individual firm indicate?

A

indicates how much labor that firm will want to employ at each wage level

slopes downwards

25
Q

what does the market demand curve (or schedule) indicate?

A

it is just the summation of the labor demanded by all firms in a particular labor market at each level of the real wage

slopes downwards

26
Q

for the market and individual firm demand curves, what happens when real wage falls?

A

demand for labor increases

27
Q

what must a firm adjust to maximize profits in the long run? why?

A

the firm must adjust both labor and capital

so that the marginal revenue product of each equals its marginal expense

28
Q

in the long run, which formulas must be satisfied to achieve profit maximization?

A

MPL * P = W

P = W/MPL

MPK * P = C

P = C/MPK

W/MPL = C/MPK

29
Q

what is the profit-maximizing formula for capital?

A

MPK * P = C

30
Q

what is the meaning of W/MPL?

A

W is the cost of a unit of labor

MPL he extra output produced by an added unit of labor

Therefore, the ratio W/MPL turns out to be the added cost of producing an added unit of output when using labor to generate the increase in output

31
Q

what is the meaning of C/MPK?

A

cost of producing an extra unit of output using capital

32
Q

what does the formula W/MPL = C/MPK suggest?

A

to maximize profits, the firm must adjust its labor and capital inputs

the goal is to make the marginal cost of producing an added unit of output using labor equal to the marginal cost of producing an added unit of output using capital

it must be operating at the point such that further marginal changes in both labor and capital would neither lower costs nor add to profits

33
Q

what happens when W rises in the short run?

A
  1. disturbs the equality in equation P = W/MPL
  2. this will make the the firm will want to cut back on its use of labor even before it can adjust capital
  3. any cuts in labor will raise MPL
  4. because each unit of capital now has less labor working with it, the MPK falls, disturbing the equality in equation P = C/MPK
  5. this will cause the firm to want to reduce its stock of capital
  6. the equation W/MPL = C/MPK takes the , meaning marginal cost of production using labor now exceeds the marginal cost using capital
34
Q

what happens in the long run when W rises?

A

the equation W/MPL = C/MPK will get restored

35
Q

when are two inputs substitutes in production?

A

when the greater use of one in producing output can compensate for reduced use of the other

36
Q

when you decide to use an input more often than another input to produce output and these are substitutes in production,

what happens when the price of the latter increases?

A

The demand curve of he former will shift to the right to replace it

37
Q

what does any shift of the demand curve of an input depend on when other inputs are involved?

A

on the relative strength of the substitution and scale effects between two inputs

38
Q

when does the scale effect dominate the substitution?

A

when an increase in the price of one input shifts the demand for another input to the left

39
Q

when are two inputs said to be gross complements?

A

when an increase in the price of one input shifts the demand for another input to the left

when does the scale effect dominate the substitution?

40
Q

when are two inputs said to be gross substitutes?

A

when an increase in the price of one input shifts the demand for the other input to the right

when the substitution effect dominates

41
Q

how are inputs called when they must be used together

A

they are called perfect complements or complements in production

42
Q

what is the formula for a monopoly wanting to maximize profits?

A

MRPL = MR * MPL = W

43
Q

what is the formula of the demand for labor for a monopoly?

A

(MR/P) * MPL = (W/P)

44
Q

is the marginal revenue of a monopoly the same of its product price?

A

nah

marginal revenue is always less than a monopoly’s product price

45
Q

are wage rates of a monopoly always different from that of a competitive marker?

A

nah boy

46
Q

who has the burden of employee’s payroll tax?

A

both employers and employees

employers pay the tax rolls

as a result, there is downward pressures on the wage rates

47
Q

what affects the proportion of the employer payroll tax that gets shifted to employees’ wages?

A

The extent to which the labor market supply curve is sensitive to wages

48
Q

if the labor supply is not responsive to wage changes,

basically, if the supply is inelastic and a vertical curve,

what happens to the overall equilibriums and payroll taxes?

A

since they are not responsive wage changes, a larger part of payroll taxes can be shifted to employees in the form of wage decrease

Qs remains the same, but for a much lower wage

49
Q

what is the opposite of a payroll tax on employers?

A

a government subsidy of employers’ payrolls

instead of taxing each hour of labor by X, the government paid the employer X

50
Q

what effect does the government subsidy of employers’ payrolls cause on the demand of labor curve?

A

the market labor demand curve would shift upward by a vertical distance of X

X being the amount of subsidy

basically, whole curve shifts to the right

51
Q

what does the shift of the demand of labor curve caused by a government subsidy of employers’ payrolls do to the labor market equilibrium?

A

creates pressures to increase employment and the wages received by employees

52
Q

what are the forms that payroll subsidies can take?

A

cash payments

tax credits that reduce overall cost of hiring labor

53
Q

to who do wage subsidies apply to?

A

to a firm’s employment level

to any new employees hired after a certain date (even if they just replace workers who have left)

or only to new hires that serve to increase the firm’s level of employment

54
Q

what are the types of wage subsidies

A

general or selective

55
Q

general subsidies

A

not conditional on the characteristics of the people hired

56
Q

selective subsidies

A

it is targeted

makes the subsidy conditional on hiring people from certain target groups (such as the disadvantaged)

Market analysis- 220 (41 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions