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Econ > Unit 9 + 10 > Flashcards

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
Q

Minimum wage in PC labor market

A

Acts as a binding price floor

26
Q

Average product

A

Total output/total variable input

27
Q

Marginal product curve

A

Eventually decreases because of DMR

Intersects average product curve at its maximum

28
Q

Economic rent

A

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
Q

Land labor and capital earn…

A

The value if their marginal contribution to the production process

30
Q

When the supply of a factor falls, what happens to equilibrium factor price?

A

It rises

31
Q

Externality

A

The uncompensated impact of one person’s actions on a bystander

32
Q

Positive vs. negative externality

A

Positive: external benefit
Negative: external cost

33
Q

Marginal private cost

A

Cost of producing a good to private producers

34
Q

Marginal private benefit

A

Demand without externalities

35
Q

Marginal social cost

A

Affects SUPPLY

The cost to society of producing one more good

36
Q

Marginal social benefit

A

Affects DEMAND

Utility of all consumers when receiving a good

37
Q

Negative externalities increase…to a society

Positive externalities increase…to a society

A

Costs: affects supply
Benefits: affects demand

38
Q

Negative externality vs socially optimum

A

Eq. Q is above socially optimum

Can be corrected with a tax on producers

39
Q

Positive externality vs socially optimum

A

Eq. Q is below socially optimum

Can be corrected with a subsidy for consumers

40
Q

Negative vs. positive externalities which creates shortages, which crested surpluses?

A

Negative: create surplus
Positive: created shortage

41
Q

Internalizing the externality

A

Altering incentives so people take into account the external effects of their actions

42
Q

The Lorenz curve shows

A

The distribution of personal income

43
Q

Monopsony

A

Firm that is the only buyer in the market

Econ (14 decks)

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