Factor markets + Nature and functions of product markets

Question 1

characteristics of a perfectly competitive Labor Market (4)

Answer 1

• Many small firms that hire workers
• Many workers with identical skills
• wage is constant
• workers are wage takers

Question 2

what is demand for labor?

Answer 2

demand is the different quantities of workers that businesses are WILLING and ABLE to hire at different wages

Question 3

What is the Law of demand for labor?

Answer 3

there is an INVERSE relationship between wage and quantity of labor demanded

Question 4

what is supply for labor

Answer 4

supply is the different quantities of individuals that are willing and able to sell their labor at different wages

Question 5

what is the law of supply for labor?

Answer 5

there is a direct (or positive) relationship between wage and quantity of labor supplied

Question 6

Who demands labor?

Answer 6

firms demand labor

*demand line for labor shows the quantities of workers that firms will hire at different wage rates

Question 7

IN DEMAND
As wage falls, Quantity demanded _______
As wage increases, quantity demanded ______.

Answer 7

• increases

- falls

Question 8

who supplies labor

Answer 8

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

Question 9

IN SUPPLY
as wage increases, quantity supplied ________
as wage decreases, quantity supplied _______

Answer 9

• increases

- decreases

Question 10

wage is set by_____ in perfectly competitive labor market

Answer 10

set by the market

Question 11

what is MRP (marginal revenue product)

Answer 11

-the additional revenue generated by an additional worker (resource)

Question 12

when do you use MP x P to find MRP

Answer 12

Perfectly competitive labor market

Question 13

other than MP x P, What is another way to find MRP?

Answer 13

change in total revenue/ change in inputs

*can be used for non perfect competitive labor markets

Question 14

what is MRC (marginal resource cost)

Answer 14

the additional cost of an additional resource (worker)

Question 15

in perfect competitive labor market what is MRC?

Answer 15

The wage set by the market

*it is constant

Question 16

what is another way to find MRC?

Answer 16

Change in total cost/ change in inputs

*can be used for non perfect competitive labor markets

Question 17

how do you know how many resource (workers) to employ?

Answer 17

MRP = MRC

Question 18

in the graph for individual firms what does supply equal? (in perfect competitive market)
what does demand equal? (in perfect competitive market)

Answer 18

• supply=MRC=Wage

- Demand=MRP

Question 19

why does MRP eventually fall?

Answer 19

Diminishing marginal returns

Question 20

what is diminishing marginal returns?

Answer 20

fixed resources means each worker will eventually add less than the previous worker (think links game)

Question 21

what is the formula for profit max in perfect competition labor market?

Answer 21

MRP labor/Price labor = MRPcapitol/Price capitol =1

Question 22

what is the general profit max equation?

Answer 22

MRP labor/MRC labor= MRP capitol/MRC capitol = 1

Question 23

what is the formula for least cost combination formula for perfect competition labor market?

Answer 23

MPlabor/Pricelabor = MPcapitol/Pricecapitol

Question 24

what is the general formula for least cost combination?

Answer 24

MPlabor/MRClabor = MPcapitol/ MRCcapitol

Question 25

what is nominal wage?

Answer 25

the amount of money received per hour, day, or year

-what you actually receive/ what you actually see

Question 26

what is real wage?

Answer 26

the quantity of goods and services a worker can obtain with nominal wages
-purchasing power