Chapters 14 & 15

Question 1

derived demand

Answer 1

demand for an input used in the production process

Question 2

marginal product of labor

Answer 2

change in output associated with adding one additional worker

Question 3

diminishing marginal product

Answer 3

each successive worker adds less value

Question 4

value of the marginal product (VMP)

Answer 4

marginal product of an input multiplied by the price of the output it produces
-curve slopes downward due to diminishing marginal product

Question 5

factors that shift labor demand

Answer 5

• change in demand for the product firm produces

- change in cost of producing that product

Question 6

substitution effect

Answer 6

when laborers work more hours at higher wages, substituting labor for leisure

Question 7

income effect

Answer 7

occurs when laborers work fewer hours at higher wages, using their additional income to demand more leisure

Question 8

backward-bending labor supply curve

Answer 8

occurs when workers value additional leisure more than additional income

Question 9

factors that affect the supply curve

Answer 9

• other employment opportunities
• changing composition of the workforce
• migration and immigration

Question 10

immigration

Answer 10

people from foreign countries enter the United States (legal and illegal)

Question 11

Migration

Answer 11

process of moving from one place to another within the United States

Question 12

Market for Labor Equilibrium

Answer 12

wages of workers equal supply of workers willing to rent their time

Question 13

surplus of workers

Answer 13

supply of workers willing to rent their time exceeds demand for that time

• places downward pressure on wages
• when wages drop to equilibrium wage, surplus of workers eliminated

Question 14

shortage of workers

Answer 14

wages below equilibrium, demand for labor exceeds available supply

• forces firms to offer higher wages to attract workers
• wages rise until shortage is eliminated at equilb. wage

Question 15

outsourcing of labor

Answer 15

occurs when a firm shifts jobs to an outside company

• usually overseas
• cost of labor is lower

Question 16

outsourcing short run

Answer 16

jobs not lost; relocated from high-labor-cost areas to low-labor-cost areas
-benefits for term

Question 17

outsourcing long run

Answer 17

benefits domestic consumers (lower costs = lower prices) and producers
-key component in international trade

Question 18

monopsony

Answer 18

situation in which only one buyer

Question 19

economic rent

Answer 19

difference between what a factor of production earns and what it could earn in the next-best alternative

Question 20

Bang per buck

Answer 20

value of marginal product divided by wage or rental price

Question 21

compensating differential

Answer 21

a difference in wages offered to offset the desirability or undesirability of a job

Question 22

human capital

Answer 22

set of skills that workers acquire on the job and through education

Question 23

union

Answer 23

group of workers who bargain collectively for better wages and benefits

Question 24

strike

Answer 24

work stoppage designed to aid a union’s bargaining position

Question 25

efficiency wages

Answer 25

wages higher than equilibrium wages

-offered to increase worker productivity

Question 26

productivity

Answer 26

effectiveness effort as measured in terms of rate of output per unit of input

Question 27

wage discrimination

Answer 27

workers with same ability as others are not paid the same because of their race, ethnic origin, sex, age, religion, or other group characteristic

Question 28

life-cycle wage pattern

Answer 28

refers to predictable effect that age has on earnings over course of a person’s working life.
-peak in early 60s and slowly fall thereafeter

Question 29

occupational crowding

Answer 29

phenomenon of relegating group of workers to a narrow range of jobs in economy

Question 30

Winner-take-all

Answer 30

extremely small differences in ability lead to sizable differences in compensation

Question 31

income inequality raion

Answer 31

dividing top quintine’s income percentages by bottom quintile’s income percentage

Question 32

poverty rate

Answer 32

percentage of population whose income is below poverty threshold

Question 33

poverty threshold

Answer 33

income level below which person or family is considered impoverished

Question 34

Gini index

Answer 34

measurment of income distribution of a country’s residents

Question 35

Lorenz curve

Answer 35

visual representation of the Gini Index

Question 36

In-Kind transfers

Answer 36

transfers (mostly to the poor) in form of goods or services instead of cash

Question 37

underground economies

Answer 37

composed of markets in which goods or services are traded illegally

Question 38

income mobility

Answer 38

ability of workers to move up or down economic ladder over time

Question 39

medicaid

Answer 39

joint federal and state program that helps low-income individuals and households pay for costs associated with long-term medical care

Question 40

Samaritan’s dilemma

Answer 40

act of charity creates disincentives for recipients to take care of themselves