Factor markets + Nature and functions of product markets Flashcards
characteristics of a perfectly competitive Labor Market (4)
- Many small firms that hire workers
- Many workers with identical skills
- wage is constant
- workers are wage takers
what is demand for labor?
demand is the different quantities of workers that businesses are WILLING and ABLE to hire at different wages
What is the Law of demand for labor?
there is an INVERSE relationship between wage and quantity of labor demanded
what is supply for labor
supply is the different quantities of individuals that are willing and able to sell their labor at different wages
what is the law of supply for labor?
there is a direct (or positive) relationship between wage and quantity of labor supplied
Who demands labor?
firms demand labor
*demand line for labor shows the quantities of workers that firms will hire at different wage rates
IN DEMAND
As wage falls, Quantity demanded _______
As wage increases, quantity demanded ______.
- increases
- falls
who supplies labor
individuals supply labor
- supply of labor is the number of workers that are willing to work at different wage rates
- *higher wages give workers incentive to leave other industries or give up leisure time
IN SUPPLY
as wage increases, quantity supplied ________
as wage decreases, quantity supplied _______
- increases
- decreases
wage is set by_____ in perfectly competitive labor market
set by the market
what is MRP (marginal revenue product)
-the additional revenue generated by an additional worker (resource)
when do you use MP x P to find MRP
Perfectly competitive labor market
other than MP x P, What is another way to find MRP?
change in total revenue/ change in inputs
*can be used for non perfect competitive labor markets
what is MRC (marginal resource cost)
the additional cost of an additional resource (worker)
in perfect competitive labor market what is MRC?
The wage set by the market
*it is constant
what is another way to find MRC?
Change in total cost/ change in inputs
*can be used for non perfect competitive labor markets
how do you know how many resource (workers) to employ?
MRP = MRC
in the graph for individual firms what does supply equal? (in perfect competitive market)
what does demand equal? (in perfect competitive market)
- supply=MRC=Wage
- Demand=MRP
why does MRP eventually fall?
Diminishing marginal returns
what is diminishing marginal returns?
fixed resources means each worker will eventually add less than the previous worker (think links game)
what is the formula for profit max in perfect competition labor market?
MRP labor/Price labor = MRPcapitol/Price capitol =1
what is the general profit max equation?
MRP labor/MRC labor= MRP capitol/MRC capitol = 1
what is the formula for least cost combination formula for perfect competition labor market?
MPlabor/Pricelabor = MPcapitol/Pricecapitol
what is the general formula for least cost combination?
MPlabor/MRClabor = MPcapitol/ MRCcapitol
what is nominal wage?
the amount of money received per hour, day, or year
-what you actually receive/ what you actually see
what is real wage?
the quantity of goods and services a worker can obtain with nominal wages
-purchasing power
