Labor Market, Unemployment, Inflation and Unemployment

Question 1

Demand for factors is ______; is ______; comes from ________

Answer 1

derived demand; interdependent; profit-maximizing firms

Question 2

A firm’s demand for a factor of production or input (labor, capital, natural resources, etc.) is ultimately derived from:

Answer 2

1. the demand for the goods and services it produces
2. the firm’s decision to supply a good or service in the product market

Question 3

Why do firms demand an input?

Answer 3

That input permits them to produce a good which consumers desire now or in the future.

Question 4

The extra amount of output
the firm gets from one extra unit of labor, holding the amount of capital fixed, is the ____

Answer 4

marginal product of labor (MPL)

Question 5

The amount of extra output the firm gets from an extra unit of capital, holding the amount of labor constant, is the ___.

Answer 5

marginal product of capital (MPK)

Question 6

How much labor does the firm hire?

Answer 6

The manager continues to hire labor until the next unit
would no longer be profitable—that is, until the MPL falls to the point where the extra revenue equals the wage.

Question 7

What causes labor demand to shift? (3)

Answer 7

1. output price
2. technological change
3. supply of other factors

Question 8

What does an upward-sloping labor-supply curve mean?

Answer 8

An increase in wage induces workers to increase the quantity of labor supplied.

Question 9

What causes labor supply to shift?

Answer 9

1. Changes in tastes/social attitudes influencing labor-force participation, alteration of working patterns
2. Changes in alternative opportunities (i.e., switching occupations depending on opportunities available in other labor markets.)
3. Immigration

Question 10

Employed persons who want additional hours of work in their present job; or to have additional job; or a new job with longer working hours.

Answer 10

Underemployed persons

Question 11

Underemployed persons who worked less than 40 hours during the reference week

Answer 11

Visibly underemployed persons

Question 12

underemployed persons who worked 40 hours or more during the reference week

Answer 12

Invisibly underemployed persons

Question 13

A movement from unemployment to outside of the labor force; persons in this category are sometimes described as ___.

Answer 13

discouraged workers

Question 14

The period of time that an individual is continuously unemployed is called
an __.

Answer 14

unemployment spell

Question 15

Two types of unemployment that always exist in the labor market and thus prevent the unemployment rate from ever reaching zero

Answer 15

1. Frictional unemployment
2. Structural unemployment

Question 16

The rate of unemployment that prevails when output and employment are at their full-employment levels is called the ___.

Answer 16

natural rate of unemployment

Question 17

The difference between the actual unemployment rate and the natural rate of unemployment is called

Answer 17

cyclical unemployment

Question 18

Workers are unemployed not because they are actively searching for
the jobs that best suit their individual skills but because…

Answer 18

…there is a
fundamental mismatch between the number of people who want to
work and the number of jobs that are available.

Question 19

3 causes of wage rigidity

Answer 19

1. minimum wage laws
2. unions and collective bargaining
3. efficiency wages