Chapters 14 & 15 Flashcards
derived demand
demand for an input used in the production process
marginal product of labor
change in output associated with adding one additional worker
diminishing marginal product
each successive worker adds less value
value of the marginal product (VMP)
marginal product of an input multiplied by the price of the output it produces
-curve slopes downward due to diminishing marginal product
factors that shift labor demand
- change in demand for the product firm produces
- change in cost of producing that product
substitution effect
when laborers work more hours at higher wages, substituting labor for leisure
income effect
occurs when laborers work fewer hours at higher wages, using their additional income to demand more leisure
backward-bending labor supply curve
occurs when workers value additional leisure more than additional income
factors that affect the supply curve
- other employment opportunities
- changing composition of the workforce
- migration and immigration
immigration
people from foreign countries enter the United States (legal and illegal)
Migration
process of moving from one place to another within the United States
Market for Labor Equilibrium
wages of workers equal supply of workers willing to rent their time
surplus of workers
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
shortage of workers
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
outsourcing of labor
occurs when a firm shifts jobs to an outside company
- usually overseas
- cost of labor is lower
outsourcing short run
jobs not lost; relocated from high-labor-cost areas to low-labor-cost areas
-benefits for term
outsourcing long run
benefits domestic consumers (lower costs = lower prices) and producers
-key component in international trade
monopsony
situation in which only one buyer
economic rent
difference between what a factor of production earns and what it could earn in the next-best alternative
Bang per buck
value of marginal product divided by wage or rental price
compensating differential
a difference in wages offered to offset the desirability or undesirability of a job
human capital
set of skills that workers acquire on the job and through education
union
group of workers who bargain collectively for better wages and benefits
strike
work stoppage designed to aid a union’s bargaining position
efficiency wages
wages higher than equilibrium wages
-offered to increase worker productivity
productivity
effectiveness effort as measured in terms of rate of output per unit of input
wage discrimination
workers with same ability as others are not paid the same because of their race, ethnic origin, sex, age, religion, or other group characteristic
life-cycle wage pattern
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
occupational crowding
phenomenon of relegating group of workers to a narrow range of jobs in economy
Winner-take-all
extremely small differences in ability lead to sizable differences in compensation
income inequality raion
dividing top quintine’s income percentages by bottom quintile’s income percentage
poverty rate
percentage of population whose income is below poverty threshold
poverty threshold
income level below which person or family is considered impoverished
Gini index
measurment of income distribution of a country’s residents
Lorenz curve
visual representation of the Gini Index
In-Kind transfers
transfers (mostly to the poor) in form of goods or services instead of cash
underground economies
composed of markets in which goods or services are traded illegally
income mobility
ability of workers to move up or down economic ladder over time
medicaid
joint federal and state program that helps low-income individuals and households pay for costs associated with long-term medical care
Samaritan’s dilemma
act of charity creates disincentives for recipients to take care of themselves
