Unit 9 + 10 Flashcards

1
Q

Characteristics of a PC labor market

A
  • market consists of many firms and many substitutible workers
  • firms are wage takers
  • no barriers to entry
  • firms are DEMANDERS
  • households are SUPPLIERS
  • firms produce goods in PC product markets
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2
Q

Differences between PC product and PC labor market

A

PC labor market:

  • many firms, no barriers to entry
  • firms are wage takers
  • firms are DEMANDERS

PC product market:

  • many firms, no barriers to entry
  • firms are price takers
  • firms are suppliers
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3
Q

Profit maximizing rule in PC labor market

A

MC=MR
If MR>MC: produce more
If MR

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4
Q

Marginal product

A

The increase in production as one input is added

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5
Q

Marginal product of labor

A

The increase in production (output) when one more unit of labor is added

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6
Q

Marginal revenue product of labor

MRP=

A

Value of marginal product of labor, revenue gained from hiring one more worker (is it worth it?)
MRP=MPL(marginal product of labor) x price of good

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7
Q

The firms demand curve and the market demand for laborers

What wage do they hire?

A

Market demand for laborers is equal to all other firms in the markets demand for labor
Hire at a wage that does not exceed their marginal revenue product of labor

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8
Q

Factors that shift labor demand curve

A

And change from MP or P
MP: anything that changes marginal product of labor (ex. Technology, supply of other factors of production)
P: anything that changes price (ex. Shifts in product market)
Technology

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9
Q

Shifts in demand for labor in labor markets and firms deriving from PRICE

A

Price increases: demand for labor shifts RIGHT

Price decreases: demand for labor shifts LEFT

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10
Q

Shifts in demand for labor in labor markets and firms deriving from MPL

A

MPL increases: demand for labor shifts RIGHT

MPL decreases: demand for labor shifts LEFT

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11
Q

Supply in PC labor market-what does it represent?

A higher wage=

A

Labor supply curve represents trade off between work time and leisure time
Higher wage=greater OC of leisure

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12
Q

Equilibrium in PC Labor markets

Wage=

A

Equilibrium wage adjusts to balance supply and demand of labor
Wage=Marginal revenue product of labor

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13
Q

Factors that shift PC labor supply curve

A
  • change in taste (willingness to work)
  • change in opportunities (substitute jobs)
  • Q of workers available (due to immigration and emigration)
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14
Q

Marginal factor cost

A

The cost of each additional factor employed by a firm

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15
Q

The wage in PC labor

Eq=

A

Eq wage in PC labor market sets wage for PC firm

Eq=MFC=supply of firm

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16
Q

A firm in a PC labor market D=

Where do you maximize profit?

A

D=MRP

Maximize profits where MFC=MRP and hire workers until MFC=MRP

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17
Q

In a PC labor market, hire workers until

A

Marginal revenue product=Marginal factor cost

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18
Q

Diminishing marginal product

A

Marginal product of an input declines as the quantity of an input increases

19
Q

Value of marginal product

A

Marginal product of input X price of output

The workers contribution to revenue

20
Q

Equilibrium in labor market

A

-wage adjusts to balance supply and demand for labor
-wage=value of MPL
When a firm is in equilibrium, each firm has bought as much labor as it finds profitable

21
Q

Rule for profit maximization in labor market equilibrium

A

Firms hires workers until value of marginal product of labor=wage

22
Q

Any change in supply and demand for labor changes…

A

The equilibrium wage and value of marginal product by the same amount, because they must always be equal

23
Q

When labor supply increases, equilibrium wage…

A

Falls. At the lower wage, firms hire more labor so employment rises,and with more workers, the added output from an extra worker is smaller

24
Q

When labor demand increases, equilibrium wage…

A

Rises. Change in wage reflects change in value of marginal product of labor, and with a higher output price, the added output from and extra worker is more valuable

25
Minimum wage in PC labor market
Acts as a binding price floor
26
Average product
Total output/total variable input
27
Marginal product curve
Eventually decreases because of DMR | Intersects average product curve at its maximum
28
Economic rent
the positive difference between the actual payment made for a factor of production (such as land labor or capital) to its owner and the payment level expected by the owner due to its exclusively or scarcity
29
Land labor and capital earn...
The value if their marginal contribution to the production process
30
When the supply of a factor falls, what happens to equilibrium factor price?
It rises
31
Externality
The uncompensated impact of one person's actions on a bystander
32
Positive vs. negative externality
Positive: external benefit Negative: external cost
33
Marginal private cost
Cost of producing a good to private producers
34
Marginal private benefit
Demand without externalities
35
Marginal social cost
Affects SUPPLY | The cost to society of producing one more good
36
Marginal social benefit
Affects DEMAND | Utility of all consumers when receiving a good
37
Negative externalities increase...to a society | Positive externalities increase...to a society
Costs: affects supply Benefits: affects demand
38
Negative externality vs socially optimum
Eq. Q is above socially optimum | Can be corrected with a tax on producers
39
Positive externality vs socially optimum
Eq. Q is below socially optimum | Can be corrected with a subsidy for consumers
40
Negative vs. positive externalities which creates shortages, which crested surpluses?
Negative: create surplus Positive: created shortage
41
Internalizing the externality
Altering incentives so people take into account the external effects of their actions
42
The Lorenz curve shows
The distribution of personal income
43
Monopsony
Firm that is the only buyer in the market