Unit 5 Flashcards
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What are factor markets?
Factor markets involve the buying and selling of the factors of production (land, labor, capital, and entrepreneurship).
What are the factors of production?
The factors of production are: Land: Natural resources and real estate. Labor: Human effort, both physical and mental. Capital: Man-made resources (machinery, equipment, technology). Entrepreneurship: Risk-taking, innovation, and combining other factors to create new products or services.
What is the derived demand for factors of production?
Derived demand is the demand for a factor of production that depends on the demand for the final product it helps create.
What is the Marginal Revenue Product (MRP)?
MRP is the additional revenue generated by employing one more unit of a factor of production.
What is the Marginal Factor Cost (MFC)?
MFC is the additional cost incurred by employing one more unit of a factor of production.
What are the types of factor markets?
Types of factor markets: Labor Markets: Buying and selling of labor services. Capital Markets: Buying and selling of capital goods. Land Markets: Buying, selling, or renting land and resources. Entrepreneurial Markets: Buying and selling of innovative ideas and risk-taking.
How is demand for factors of production derived?
Demand for factors of production is derived from the demand for the final goods and services they help produce.
What is the MRP equation?
MRP = MP × MR (Marginal Product × Marginal Revenue).
What factors shift the demand curve for a factor of production?
Factors that shift the demand curve include: Changes in the demand for the final product. Changes in the productivity of the factor. Changes in the prices of related factors (substitutes or complements).
What factors shift the supply curve for a factor of production?
Factors that shift the supply curve include: Changes in the number of suppliers. Changes in the cost of producing or providing the factor. Changes in the prices of alternative uses for the factor. Government policies and regulations.
What is equilibrium in a factor market?
Equilibrium occurs when the quantity demanded equals the quantity supplied at a given price, determined by the intersection of the demand and supply curves.
What happens in a competitive factor market?
In a competitive factor market, firms are price takers, and the equilibrium price is determined by market forces of supply and demand.
What happens in a non-competitive factor market?
In non-competitive markets (monopoly, monopsony, or oligopsony), firms have market power and can influence the price of the factor.
How is the price of a factor determined in a competitive factor market?
The price of a factor is determined by its marginal revenue product (MRP). Firms employ a factor until MRP equals the factor’s price.
What is the relationship between MRP and the demand curve for a factor?
The downward-sloping MRP curve represents the demand for a factor, and as more units of a factor are employed, MRP decreases due to diminishing marginal returns.
What is labor market demand derived from?
The demand for labor is derived from the demand for the goods and services it helps produce.
What factors affect the supply of labor?
Factors include population growth, labor force participation rates, education and training, and the opportunity cost of working.
What influences wage determination in the labor market?
Wage determination is influenced by the interaction between labor demand and supply, as well as institutional factors like minimum wage laws, unions, and collective bargaining.
What is human capital?
Human capital refers to the skills, knowledge, and experience of workers, which impacts their productivity and wages.
How do technological changes impact labor demand?
Technological change can shift labor demand, leading to increased demand for skilled labor and wage inequality between skilled and unskilled workers.
How does international trade affect factor markets?
International trade can lead to offshoring of jobs, affecting wages in domestic industries.
How do government policies affect factor markets?
Policies such as taxes, subsidies, and regulations can influence factor market outcomes, e.g., corporate tax rates affecting capital investment.
What are case studies of specific factor markets?
Examples include markets for agricultural land, intellectual property rights, and executive talent in corporate leadership positions.
