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Unit 4 Flashcards

0
Q

Produce where

A

MRP=MRC

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1
Q

Marginal Revenue Product is the same as

A

Demand for resources

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2
Q

MPP

A

Marginal Physical Product

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3
Q

MRC

A

Wages

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4
Q

Key points of the resource market

A
  • firm is the buyer
  • derived demand
  • if workers become more productive, the MRP goes up which causes the demand to shift right and then they hire more workers
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5
Q

MRP determinants

A
  • price or demand for a product
  • productivity
  • price of other resources
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6
Q

Least cost combination

A

MPl/Pl=MPc/Pc

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7
Q

Profit Maximizing

A

MRPl/Pl=MRPc/Pc=1

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8
Q

Firms and markets are

A

wage takers

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9
Q

MRC is graphed

A

above the supply curve

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10
Q

If the wage goes above the MRC=MRP, then the firm is

A

worse off

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11
Q

Bilateral Monopoly

A

monopsony and an inclusive union, should be better off for society
-monopsony tends to higher fewer workers at a lower wage which is less than socially optimal

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12
Q

Unions

A

Improve the wellness of its members (at the cost of others)

1) Demand enhancement model
2) Craft
3) Inclusive Union

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13
Q

Demand enhancement model

A

1) increase demand–increase mrp–increase employment

by political lobbying

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14
Q

Exclusive or Craft Union Model

A 
decreasing supply (regulations on who can work) 
ie: med school, restricting immigration, reducing child labor, encourages retirement, enforces shorter work week
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15
Q

Inclusive Union

A

collective bargaining

ie: teachers union

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16
Q

Rent

A

payment for a resource that is inelastic

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17
Q

Nominal

A

Not adjusted by inflation

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18
Q

Real

A

Adjusted by inflation–attract productivity (technology, more capital, more resource, education, health, health, life span)

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19
Q

Interest Rate Determinants

A

-Risk factor
-Size of loan (greater risk and inflation)
-
-

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20
Q

Loanable funds market

A

Supply is determined by people putting savings in the bank

  • businesses want loans from the bank
  • higher interest=less demand
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21
Q

Total Revenue=

A

TP*Product price

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22
Q

Resource pricing is significant because

A
  • Money income determination (resource prices determine income)
  • Cost minimization (resource prices=costs for firms)
  • Resource Allocation (technology and productivity change)
  • Policy issues (minimum wage? labor union restriction?)
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23
Q

Firm is a ______ in the competitive resource market

A

price taker

24
derived demand
demand for a resource that is derived from the demand for the products that the resource helps to produce, the strength of the demand depends on the 1) productivity of the resource 2) the market value of the product
25
MRP
change in TR/unit change in quantity
26
MRC
change in total resource cost/ unit change in resource quantity
27
Profit maximizing
MRP=MRC
28
Determinants of resource demand
1) changes in product demand 2) changes in productivity 3) change in the price of other resources 4) occupational employment trends
29
Demand for labor increases when
- demand for the product goes up - productivity goes up - Substitute input price goes down - price of substitute input goes up - complementary input goes down
30
Elasticity of resource demand
less elastic the greater the difficulty of substituting other resources for the resource, the smaller the elasticity of a product demand the smaller the proportion of the total cost accounted for by the resource
31
Marginal theory of income distribution
all resources are paid according to their marginal contributions to output
32
Nominal wage
amount of money received per hour, day, or year
33
real wage
adjusted for inflation
34
Purely competitive labor market
- firms are wage takers - no union assumed - intersection of demand and supply determines wage and level of employment - no single firm can enhance the wage rate - supply of labor is perfectly elastic - mrc is constant***** - TR=sum of MRP
35
Monopsony Model
- one buyer of a specific type of labor - workers have few other options - firm is wage maker - employs fewer workers and has lower wages than purely competitive
36
Minimum wage
Leads to fewer workers being employed because of downsloping labor demand curve but it may not be significant unemployment....controversial
37
Wage Differentials
- differences in MRP - amounts of human capital - nonmonetary aspects of the job - market imperfections
38
Pay for Performance
piece rates, commissions, royalties, bonuses, efficiency wages -tries to fight the principal agent problem
39
Negatives of pay for performance
- poor product quality and compromise of safety - questionable practices - "free ride" on other workers
40
What does supply represent in the loanable funds market?
household savings
41
In a monopsony, MRC is above supply because
in order to hire more workers the monopsonist must raise the wage of all workers
42
Economic rent
price paid for the use of land and other natural resources that are fixed in supply or perfectly inelastic
43
What is the determinant of rent
demand
44
Incentive function
a high price provides an incentive to offer more of the resource where as a low price prompts resource suppliers to offer less
45
Rent serves
no incentive function
46
Land rents are
surplus payments
47
Single tax movement
only tax landlords because it helps find the best allocation of the land -now it is called inadequate, impractical and unfair
48
Is money a resource?
NO
49
Interest rate determinants
1) risk 2) length of loan 3) size of loan 4) taxability
50
Pure interest rate
*
51
Equilibrium interest rate in the loanable funds market is determined by
the demand and supply for loanable funds
52
Compound interest
total interest that cumulates over time on money in an interest making account
53
usury law
maximum interest rate that can be made effects: 1) deny credit to low income people (nonmarket rationing) 2) subsidize high income borrowers and penalize lenders (gainers and losers) c) diminish efficiency
54
Pure economic profit
what remains after all explicit and implicit costs are subtracted from total revenue
55
Entrepreneurs receive
accounting profit unless their accounting profit exceeds the normal profit that they could earn elsewhere in which case they make economic profit
56
Three sources of economic profit
- bearing of uninsurable risk - uncertainty of innovation - monopoly power
57
Profit and profit expectations affect the
- levels of investment - total spending - domestic output

AP Econ (15 decks)

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