Chapter 11 Microeconomics

MRP equation

M. product of labor x price output you sell

demand for labor depends on _______

consumers demand for the firms final output

Income effect provides a reason for workers to __________________ because you don't need to work as many hours to buy the things you were purchasing before

cut their hours in response to a wage rise

Test question The quantity of hours _______ is higher when the _____ is lower

demanded, wage

Labor demand is a ______ demand

derived

MC=

extra cost incurred by the extra worker

Marginal product of labor=

extra production produced by extra worker

MB=

extra revenue generated by the extra worker

Marginal Revenue Product=

extra revenue produced by hiring and additional worker

Rational rule for employers say

keep hiring until MRP is greater then or equal to wage

higher wage makes _______

leisure more attractive

Substitution effect

measures how people respond to a change in relative prices. A higher wage increases the returns to work relative to leisure leading you to work more

Income effect

measures how peoples choices change when they have more income

leisure is considered a _______ good

normal

Higher wages are an incentive to _________ more work for less leisure

substitute

hours of labor is on what axis?

the x axis

Wage is on what axis?

the y axis