Labor Market Test Flashcards
MP
Change in total product
TR
MR + next MR
MR
Change in total revenue
Price
TR/TP
Profit max =
One
Least costly=
Both ratios equal each other
Ratio for least costly
MP/price
Ratio for profit max
The Mrp/price (the one that is the same as price)
Substitution effect
Machinery price goes down so firms use more machinery than labor; production costs decrease and output decreases so demand increases
Output effect
Since the demand for the product increased the demand for labor increases
Net effect
Since output and substitution are opposites the stronger one will win out
Explain a monopsony graph
Because worker’s skills aren’t transferable the firm can hire less workers at lower wages than society would like
Explain the derived demand(demand enhancement) graph
Workers drive up demand through ads, feather bedding, etc. So they hire more workers at higher wages
Explain the craft/ exclusive Union
Workers limit the labor supply by making it harder to join the profession through required professional licensing which causes less workers and higher wages
Explain the industrial/inclusive Union
Workers refuse to work below a certain wage rate they hire fewer workers at a higher wage than the firm would like creates a surplus of workers
Explain a bilateral monopoly
A bilateral monopoly is the price difference that occurs between the industrial union and monopsony. Monopsony wants to give lower wages and union wants higher wages. The disagreement is solved through collective bargaining
What is MRP?
Demand for workers
What is MRC?
The wage
What are characteristics of a PC labor market?
Many small firms are hiring workers that have identical skills, the wage rate is constant, workers are wage taker
Why is a PC demand curve down sloping?
Diminishing productivity
MRP=
FOR PC ONLY
MP times price
What is derived demand?
Jobs that are only jobs because of the product that they produce
Characteristics of an imperfect competition labor market?
Price isn’t constant,MRC above supply curve
Why is an imperfect competition down sloping?
Diminishing marginal productivity and they have to lower the price to sell the next unit
MRC=wage rate
MRP= MRC
FOR WHAT?
IMPERFECT COMPETITIN LABOR MARKETS
Change in demand is proportional to change in demand curve
Increase demand= curve to the right
Decrease demand= curve to the left
Adding machinery to labor=
Increased productivity
The better the Machinery is, the more
Productive the firm will be
Improvements to the quality of resource will
Increase marginal productivity
A change in price will make demand change in the opposite direction so
Price goes up, labor goes down
Price goes down, labor goes up
TP
MP + next MP
An elasticity less than one is
Inelastic
Measuring the elasticity is measuring what?
The sensitivity in change in demand(MRP)
The total cost ratio
If labor is the only cost then a 20% raise=20% increase
If labor is half the cost than 20% raise=10% increase
Why do we study resource pricing?
Money income determination, resource allocation, cost munimization, ethical questions
Quantity demand is
One point on the curve
Demand is
The whole demand curve
Change in wage changes
Quantity
Change in resource demand causes
A shift is demand curve
