ECON 2302: CH. 14 Study Guide
Drag the appropriate labels to the part of the graph that illustrates their outcome. ~ Top triangle area ~ Mid square area ~ Bottom triangle area
Top triangle area: It is difficult for workers to find jobs. High wages have created a temporary surplus of labor. Mid square area: The supply and demand for labor are converging toward balance The floating wage rate assures that the market will gravitate toward an equilibrium outcome that balances the supply and demand for labor. Bottom triangle area: It is difficult for employers to find workers. Low wages have caused a temporary labor shortage. As long as there are no government wage controls, labor markets achieve equilibrium naturally.
Which of the following is an example of monopsony power?
a large retailer operates a lone supercenter shopping complex in the outskirts of a small, rural town There is only one place for most locals to sell their labor, especially those not engaged in farming. This store will be able to leverage its market power to offer lower wages.
Select the situations that shift the supply of labor.
Factor(s) That Affect the Supply of Labor: ~ A small border town sees its population increase drastically due to relaxation of immigration laws. It should expect to see an increase in the supply of both skilled and unskilled labor because there will likely be more people looking for temporary as well as permanent employment. ~ An economic downturn causes a city to lose 3% of its population. There are fewer workers available since people have left the city. Not a Factor That Affect the Supply of Labor: ~ A bookstore gives its cashiers a raise, and other bookstores in town follow suit. The quantity of labor supplied will increase, since more people are willing to work as cashiers when the pay is better. But the labor supply curve will not shift. ~ A grocery store needs more employees for a holiday weekend. This will increase the demand for labor but will not affect the supply. Many factors can affect the supply of labor, including population shifts and changes in working conditions.
It always makes sense for a firm to invest in new capital.
False New capital is not a good investment if it costs more money than it saves or if it does not contribute to marginal profit.
In the long run, it hurts the economy when employees lose their jobs because of technology.
False New technology makes certain work more efficient, so companies will benefit from replacing workers with technology. Displaced workers will find new jobs in the long run and will rejoin the workforce in other ways.
When a firm outsources a part of its production process, it may receive immediate benefits from lower labor or other input cost, but the rest of the domestic economy suffers in the long run as workers are displaced.
False While transitional impacts may be significant to domestic workers, resources will ultimately be redeployed more efficiently in the long run, which widely benefits producers, consumers, and workers. Outsourcing is a key component in international trade, and trade creates value. The outsourcing of jobs enhances overall social welfare.
A plot of land close to the beach could earn its owners $300/day as a parking lot or $500/day as a campground. Calculate the weekly economic rent of using the land as a campground.
$1,400 The owners will earn $200 more per day ($1,400 per week) if they use the plot of land as a campground rather than a parking lot. Economic rent is the difference between what a factor of production earns and what it could earn in the next-best alternative.
Stephan owns a shirt factory. He sells each shirt for $50. Previously, he had 30 employees producing a total of 300 shirts daily. Then Stephan added 10 new employees and noted that production increased to 350 shirts per day. Calculate the value of the marginal product in the range of 30-40 employees.
$250 Hiring 10 more employees increased daily revenue by $2,500. That is $250 per new employee.
Prior to the coronavirus pandemic in 2020, automation was on the rise in most fields. The pandemic fueled a technological takeover in certain industries due to social-distancing recommendations that advised people to stay 6 feet apart to limit the spread of the virus. Charles, who owns a restaurant in a trendy urban area, is looking to purchase a robot to replace some of his current line cooks and wait staff. He figures it is a good investment because using robots means that social-distancing regulations in the kitchen will not apply, and he believes that his customers will appreciate a "contactless" dining experience, where they will no longer have to make small talk with their server or worry about a tip. He hopes this will result in guests ordering higher-priced meals. The robot comes with a 10-year usable life expectancy and an initial cost of $100,000, with maintenance cost estimated to be $5,000 in years three and six. The robot will drive cost savings by helping him become more efficient—reducing the amount of ingredients that are overordered and then thrown away will save on average approximately $2,500 per month. In addition, he estimates he will also save in total labor costs by being able to let three employees go. Each employee was costing him $60 per week. Based on this, what is his total savings over 10 years, excluding the investment cost he would incur when purchasing the robot? To complete the problem, assume each year has 52 weeks and 12 months, and that the employees work all of that period.
$393,000 If Charles considers both his current labor costs ($93,600) and his potential savings on food waste ($300,000), he could save a total of $393,600. This makes the $110,000 investment in the robot a good choice because he still comes out $283,000 ahead! Item | Amount Saved | Annual Savings | Total for 10 years Reduction in food waste | $2,500/month | $30,000 | $300,000 Labor | $60/week × 52 weeks = $3,120/employee $3,120 × 3 employees | $9,360 | $93,600 Total savings excluding investment cost of robot | | | $393,600
Akua's Paint Supply charges $15 per gallon of paint. Akua started with three employees, who together produced 40 gallons of paint a day. He recently hired a fourth worker, and production increased to 48 gallons of paint a day. If Akua pays each worker $50/day, what is his marginal profit for the fourth employee? Ignore the added cost of raw materials.
$70 Akua's fourth worker is responsible for an additional 8 gallons per day, and thus increases profit by (8 × $15) - $50 = $70 per day.
Paul earns $90/hour as a landscaper and usually works eight hours each day. Paul's employer offers him a $5 per hour raise if he will work his normal hours this Saturday. He is considering taking the day off to rest. What is Paul's opportunity cost of taking the day off from work?
$760 Paul would lose $760 in income by taking the day off. He needs to decide if a day of leisure is worth that cost.
Grace owns a house. She can rent her house for two years to one tenant for a profit of $24,000 a year, or she can rent it to two tenants each year for a profit of $10,000 per tenant per year. Calculate the economic rent over the course of two years of renting to one tenant.
$8,000 Grace will earn more money by renting her home to a single tenant for two years.
Consider factors that affect the rental price of land. Order the examples below from that which is likely to command the lowest rental price to that which is likely to command the highest.
I. a plot of undeveloped land far from major urban centers The rental price would likely be very low for this land because the demand would also be low. Few people would want to build on undeveloped land that is difficult to access. II. a plot of land in the business district of a major city The rental price of this land would likely be higher than in more rural areas because of its desirable location to both city workers and employers in such densely populated areas. III. a lone beachfront parcel of land on a privately developed island in the Caribbean Such lone plots will likely command the highest rental price, not only because of their unique and highly desirable location, but because of their extremely limited and even more inelastic supply. Supply and demand greatly influence the rental price of land. When many people want a piece of land, the price will be high. When there is not a lot of land available and the demand is high, the price will be very high.
How does the demand for labor change? Order the situations from lowest demand for labor to highest demand for labor.
I. a pumpkin farm the day It is likely that there won't be a lot of people shopping for pumpkins the day or two after Halloween, so farms that harvest pumpkins will see a lower demand for their product. This affects their demand for labor. II. a restaurant on a Wednesday night It is likely that there won't be a lot of people shopping for pumpkins the day or two after Halloween, so farms that harvest pumpkins will see a lower demand for their product. This affects their demand for labor. III. a snow-removal service the morning after a blizzard After a blizzard many consumers would desperately need the services of the snow-removal company, so a large staff would be needed to meet their demand. The demand for labor is closely related to the demand for the product or service produced by a company.
Drag the labels to the appropriate locations on the graph. ~ Area across W3 ~ Area across W2 ~ Area across W1
Area across W3: The income effect is stronger than the substitution effect. At relatively high wages, workers value additional leisure time more than additional income, and then they decide to work less. Area across W2: The income and substitution effects cancel each other out. A wage increase makes no overall difference in the number of hours employees work. Area across W1: The substitution effect is stronger than the income effect. A wage increase causes workers to work more hours and to spend less time on leisure activities. When wages are very high the income effect can take hold and reduce the labor supply.
The following four situations can affect the demand for labor. Assuming we are starting on D1 in each situation, drag each letter to the corresponding location on the graph. A. Jennifer's cleaning business shifts from daytime work to nighttime work, and the wage she has to pay night crew workers is higher. B. The wage for workers at Steve's surfboard manufacturing company has fallen. C. After a competitor closes, Evan's ice cream store is the only one in town, so he hires more people to keep up with the demand. D. Sally's pottery store lost a lot of business to another antique store, so she hires fewer employees than she used to. ~ Very top of "D1" line ~ Very bottom of "D1" line ~ Bottom of "D3" line ~ Midsection of "D2" line
Area on the very top of "D1" line: A Fewer employees are willing to work at night, so the wage that Jennifer has to pay them is higher. She will demand a smaller quantity of these higher-paid workers. Very bottom of "D1" line: B When wages decrease, the quantity of labor demanded increases. Bottom of "D3" line: D Labor is a derived demand; less demand for Sally's pottery creates less demand for pottery store workers. Midsection of "D2" line: C Labor is a derived demand; more demand for Evan's ice cream creates more demand for ice cream store workers.
The COVID-19 pandemic drove innovation in all phases of life, as businesses tried to find new ways to serve their customers. One industry that saw a huge change was rural medicine, where medical facilities are scarce, given the smaller populations. Doctors had to cover multiple locations or even towns, sometimes traveling for hours to meet with only a few patients at one office and then traveling again later that day to another location. During the pandemic, virtual visits, or telemedicine, quickly became a popular replacement delivery method for doctors who were providing physician services. In the image below, select the arrow that illustrates what happens in the market for physician services as telemedicine increases.
Click bottom red-orange arrow pointing from left to right Televisits allow physicians to see more patients during a given day since they no longer need to spend time traveling from location to location.
Which arrow illustrates what happens in the domestic market for engineers when it sees an influx of engineers with similar education and skills fleeing from a nearby region that is in political turmoil?
Click on bottom red-orange arrow pointing from left to right An increased supply of engineers will result in a new equilibrium, with lower wages to WC.
Which arrow illustrates what happens in the domestic market for call-center workers when those jobs are outsourced to another country?
Click on top light blue arrow pointing from right to left Lowered demand for U.S. labor will result in a new equilibrium, with lower wages. There are costs and benefits to outsourcing. However, in the long run, outsourcing generally benefits the job-losing economy by lowering costs and improving efficiency.
The following table highlights the key determinants of the labor hiring process. Click on the data columns that are used to plot a firm's demand curve for labor.
Click sections "(1) Labor (number of workers)" and "(4) Value of the marginal product of labor" As in the demand for goods and services, quantity (referred to here as "number of workers") is represented as the horizontal axis variable in the firm's demand for labor. The six order pairs represented by both column 1 (number of workers) and column 4 (VMP) trace out the points for the firm's demand for labor, which is downward sloping. Expressed in dollars, VMP represents the additional benefit of each successive unit of labor. That is, VMP equals the marginal product of each unit of labor (MPL) multiplied by the dollar price of the output (P) it produces. VMP is the vertical axis variable in the demand for labor and can be thought of as the maximum price the firm is willing to pay for each successive unit of labor.
Which arrow illustrates what happens in India when publishing industry jobs are outsourced there from Europe and the United States?
Click the bottom light blue line pointing from left to right Increased demand for Indian labor will result in a new labor market equilibrium, with higher wages to WC.
Which situations illustrate the labor-leisure trade-off?
Correct Answer(s): ~ A company owner has to decide whether to spend the afternoon reviewing accounts or attending her daughter's softball game. Whether or not the owner is on a fixed salary, the choice is between economically productive work and an activity that is not economically productive. ~ A manual laborer has to decide whether to work extra hours or visit his mother in the hospital. The labor-leisure trade-off is about choosing between working and not working, whether or not the nonwork alternative would be considered "leisure" in the everyday sense. Incorrect Answer(s): ~ A homeowner has to decide whether to spend the afternoon mowing his yard or watching sports on TV. Neither of the two activities counts as labor in the economic sense since neither activity earns money. ~ A professional athlete has to decide whether to go to the gym as usual or meet with his agent. For a professional athlete, gym workouts and agent meetings are both economically significant activities and therefore both count as labor.
Which of the following scenarios could lower a firm's demand for labor?
Correct Answer(s): ~ Amy must pay more money to obtain the wood needed to construct chairs at her factory. Amy may need to employ fewer workers to make up for the cost of purchasing wood for her chairs. ~ James operates a restaurant in a seaside tourist town. It is winter and all the tourists have left. James will need fewer employees since there won't be as many customers. ~ Rex invests in new computer software that will automate his bookkeeping. Rex's new technology will reduce his need for employees. Incorrect Answer(s): ~ Calvin's bookstore is located near a college campus. School has just started and many students are returning to the area. Calvin may actually need to hire more workers because the demand for his books will increase when more students return to town. ~ Katie owns a coffee shop that used to have to compete with a nearby café. The café recently went out of business. Katie may see an increased demand for coffee at her shop because many of the café's old customers may need another place to buy coffee. Changes in the cost it requires to produce a good as well as changes in demand for the firm's finished product or service may increase or decrease the demand for labor.
Sunny wants to rent a beachfront cottage and is trying to decide between a summer date and an off-season date. Which aspects of Sunny's situation can be illustrated with this graph?
Correct Answer(s): ~ Demand is higher in the summer than during the off season. D2 is the summer demand curve, while D1 is the off-season curve. ~ Rental rates are higher in the summer than in the off season. P2 is the summer rental price, while P1 is the off-season price. ~ The supply of rental units does not depend on the season. The supply of land is ordinarily fixed. This is illustrated with the perfectly inelastic supply curve. Incorrect Answer(s): ~ It will be difficult for Sunny to find a high-quality cottage in the summer. The graph can depict the quantity of land that will be available during the summer, but it does not say anything about the quality. If the cottages are listed at equilibrium prices, most units will end up being rented out both in the summer and in the off season.
What might delay a market's return to equilibrium if there is a shortage of workers?
Correct Answer(s): ~ It may take several years for wages to increase to entice workers to join the field. It may take several years for employers to be able to raise their wages to a point where workers would be willing to join the industry. ~ It may take several years to train new workers to join a particular industry. Highly skilled jobs such as nursing and education require several years of training before a worker could take a position in the industry. Incorrect Answer(s): ~ The wages are very high. If wages are very high, it is likely that many workers want to join the industry, which would quickly eliminate the labor shortage. ~ There are no job openings in the field. If there is a labor shortage, there are likely many positions available to be filled. Once wages reach equilibrium and enough workers are trained in the field, it is likely that the market will no longer face a shortage of labor because there will be many eligible employees who want to work in the field.
Which of these statements about the long-term implications of outsourcing are correct?
Correct Answer(s): ~ Outsourcing can improve efficiency. Outsourcing can help countries and companies specialize, which benefits consumers by lowering prices. ~ The social welfare of all nations involved in outsourcing improves overall. Outsourcing is a key component in international trade. The mutually interdependent nature of international trade enhances overall social welfare. Incorrect Answer(s): ~ The country that receives outsourced jobs will suffer because the jobs will all be low-wage jobs. Companies save money by outsourcing to countries where the cost of labor is less expensive. Countries that receive outsourced jobs benefit because it increases demand for labor, which can put upward pressure on the equilibrium wage. ~ The economy of the country that loses jobs will suffer. Although outsourcing causes some people to lose their jobs, consumers will benefit from lower prices generated from the efficiency gains, or cost savings, by producers. Although outsourcing can cost a country jobs, it also provides significant benefits to the economies of both the country that gains jobs, as well as the country that loses them.
A company is evaluating the value of the marginal product per dollar spent across the three factors of production to make sure it is utilizing its resources efficiently. The firm discovers that it gets $100 in relative benefits from labor, $10 in relative benefits from land, and $70 in relative benefits from capital. Knowing this information, how should the company use its resources?
Correct Answer(s): ~ The company should decrease its use of land. If the company decreases its use of land, the relative benefit from land will increase to a point that is closer to the company's bang per buck for labor and capital. ~ The company should increase its use of labor. If the company uses more labor, the relative benefits from labor will fall and be closer to the relative benefits for land and capital. Incorrect Answer(s): ~ The company should do nothing. There is room for the company to use its resources more efficiently. ~ The company should increase its use of land. The company is currently getting the lowest bang per buck from its use of land. All resources are connected. If a company decides to use less land, it may also have to decrease the amount of capital and labor it uses. Firms must be aware of the returns they get from their resources.
Max owns a car repair facility. Derived demand exists for which of the following inputs to Max's facility?
Derived Demand(s): ~ replacement car parts Replacement parts are considered capital in Max's car repair business. ~ skilled workers When Max first opened his shop, demand for local mechanics increased because he needed to hire workers. ~ the garage space Max uses for car repair In order to fix cars, Max needs a place to work. The garage is an example of a good that has a derived demand because Max needs capital to run his business. ~ the land the shop sits on Since Max needs a place to fix cars, the land he bought for his company has value. Not a Derived Demand: ~ finished repaired cars The purpose of Max's facility is to deliver finished repaired cars. A derived demand would be the demand for the inputs required to create the finished product. ~ vending machine snacks from the shop's lobby While such snacks may be consumed by both Max's employees and customers, they do not represent either direct inputs used to repair cars or derived demand. The final product creates a derived demand for all factors of production required to create it.
For an organic farm with an on-site sales stand, label each factor of production as land, labor, or capital. I. transport truck II. irrigation system III. cultivated field IV. sales team V. seeds VI. crew to plant, fertilize, and harvest
I. capital A truck is a piece of equipment, therefore capital, although the driver would be categorized as labor. II. capital All equipment is listed under capital. III. land The real estate on which a business operates is considered land. IV. labor The people who run the sales stand are part of the labor force. V. land Note that while seeds are represented as natural resources under the category of "land," fertilizer, and all other such man-made consumable resources are part of capital. VI. labor The people who obtain the product from the land are part of the labor force.
When will the demand for labor increase or decrease? Match the situation to the change in demand for labor you might expect to see. I. John owns a grocery store and a major holiday is approaching. II. Laura runs a boat factory that just adopted an automated construction technique. III. Serena owns a computer factory. The cost of the metals required to make computer chips increased. IV. Will manages a bookstore whose main competitor just went out of business.
I. increase John may need to hire more employees to handle the extra demand. II. decrease Laura's factory found a way to utilize technology to replace human labor. III. decrease Serena will probably have to scale back production since the materials required to build her goods are expensive. If she reduces production, she may also have to use fewer employees. IV. increase More customers will likely shop at Will's bookstore because it is the only option for books now that his competitor has closed.
Identify each type of individual as having a high-value marginal product, as providing an essential service, or as neither. I. A bagger works at a local supermarket. II. An entrepreneur markets a very successful new game. III. A church custodian ensures that the facility remains clean and secure.
I. neither essential nor high-value marginal product While baggers can improve the market's efficiency during peak traffic periods, such services can readily be performed by the cashiers, or even the customers themselves at many venues today. Such services create low-value marginal product. II. high-value marginal product While the game may satisfy consumers' demand for entertainment and even generate substantial revenue, it is not likely to be considered necessary from a social welfare perspective. III. provides essential service While such services may be necessary or even critical to church administrators and patrons, they may contribute little to enhancing spirituality or community outreach.
Match each term to the situation it describes. I. Amy decides the opportunity cost of taking time off work is too high for her. II. After a raise, Carla sees her part-time job as more worthwhile and asks to work more hours. III. Steve notices that most of his employees choose not to work overtime. IV. Eddie feels he earns enough money and decides to cut back on his hours.
I. substitution effect Amy will likely work more hours because she feels that her wages are too high to give up to leisure time. II. substitution effect Because of her raise, Carla now values more hours over leisure activities. III. income effect Many of Steve's employees have chosen leisure over work. It is likely that they earn high wages that allow them to take time off. IV. income effect Eddie will choose more leisure time because he feels his higher wages make it possible for him to not work. The supply of labor is tied to the relationship between the wages that are offered and how employees decide to spend their time.
Place the workers in order of likely annual earnings beginning with the highest.
I. the star of a hit TV show The star cannot easily be replaced, and the show has many fans. So the labor is in very low supply, and there is high demand. II. a U.S. Army general III. a minor-league baseball player IV. a parking lot attendant The highest incomes are reserved for jobs that have high demand and low supply of workers.
The following graphs show shifts in labor demand and supply of nurses. Drag each label to the appropriate area on the diagram. ~ Light blue arrow ~ Mid red-orange line between E1 & E2 ~ Curly bracket b/w light blue line & navy line
Light blue arrow: increase in demand for nurses An aging population might be one reason for an increase in demand for nurses. Nonwage factors shift the entire curve. Mid red orange line between E1 & E2: increase in quantity supplied of nurses Nurses' wages increase along the supply curve until equilibrium is restored in the market. Curly bracket b/w light blue line & navy line: shortage of nurses at wage W1 The shortage will place upward pressure on wages.
Shoshanna owns a hair salon. She starts with one employee and hires a second a week after she opens. Shoshanna notices that after hiring the first and second worker, her total output increases and her marginal profit from each of these two employees is positive. Will it always be beneficial for Shoshanna to continually hire more employees?
No. At some point, adding more employees no longer increases profit. If Shoshanna hires too many employees, the value of their marginal product will drop below the wage she has to pay them, and so her profit will be reduced.
Advances in technology open up new possibilities for tapping shale oil reserves in rural North Dakota. Drag the labels to illustrate how demand for land above oil shale deposits will change and what will happen to the rental price of the land. ~ P2 ~ P1 ~ D2 ~ D1
P2: rental price after oil discovery As demand for the land increases because of the oil, the land becomes more valuable. P1: rental price before oil discovery Since demand for the land is low at this point, the equilibrium rental price will also be low. D2: demand after oil discovery Oil increases the value of the land because it is a valuable natural resource. Demand will thus increase. D1: demand before oil discovery Few people would be interested in a piece of remote, undeveloped land because there are few profitable uses for it. The economic rent of the land as an oil well will be quite high.
Jamison received a raise at work and had the option to cut back his hours from 40/week to 35/week. He chose not to reduce his hours. Why might he have made this decision?
Reason(s) for Jamison's Decision: ~ Jamison was influenced by the substitution effect. The substitution effect happens when employees choose to work more hours at higher wages. ~ The opportunity cost of leisure or other alternatives to work were too high. Since Jamison received a raise, his time is worth more. This means that every hour he takes off from work reduces the amount of money he could have earned. Not a Reason for Jamison's Decision: ~ Jamison was influenced by the income effect. The income effect happens when employees choose to work fewer hours at higher wages. ~ Jamison has other employment opportunities he wants to take advantage of in town. If Jamison wanted to work at a different job, it is likely he would have taken the extra time off work to pursue his other career goals.
The following graphs show shifts in labor demand and supply of nurses. Drag each label to the appropriate area on the diagram. ~ Red-orange arrow ~ Curly bracket between the peach line and the red-orange line ~ Teal line between E1 & E2
Red-orange arrow: increase in supply of nurses An increase in the number of certified nurses might be one reason for an increase in the supply of nurses. Nonwage factors shift the entire curve. Curly bracket between the peach line and the red-orange line: surplus of nurses at wage W1 The surplus will place downward pressure on wages. Teal line between E1 & E2: decrease in quantity demanded of nurses Nurses' wages decrease along the demand curve until equilibrium is restored in the market.
The initial labor supply curve for each group of people is shown by S1 on this graph. Drag the appropriate label to the labor supply curve it describes. A. Millions of college students graduate from school and begin looking for a job. B. The working-age population of a state remains steady throughout the years. C. A city has an aging population, so more people retire each year than enter the workforce. ~ S3 ~ S1 ~ S2
S3: C When people retire, they leave the workforce, which reduces the supply of labor. S1: B If the population size neither grows nor shrinks, the supply of labor will likely stay the same. S2: A Millions of people entered the workforce at once, which greatly increases the supply of labor. The supply of labor for each city/state is influenced by factors that include the changing composition of the workforce, immigration, migration, and other employment opportunities.
Why might it not be in the best interests of a company to offer very high wages?
The company could suffer from a backward-bending labor supply curve. If employees earn high enough wages, they may choose to work fewer hours and productivity and profits could suffer. This occurs when the income effect is more powerful than the substitution effect.
Companies often outsource because they can save money by using lower-cost labor.
True A firm may outsource work because the new workers are located near a cheaper source of raw materials, or energy to run a facility is cheaper in the outsource location. But normally, the main cost-saving comes through lower labor-related costs (that is, wages, payroll taxes, and the cost of complying with workplace regulations).
Jobs where the product or service is "non-essential" yet is in high demand with a limited pool of exceptionally talented workers are likely to have higher wages than jobs where the product or service is "essential."
True For example, athletes can earn very high wages because the supply of uniquely talented athletes is relatively low, while the value of the marginal product (VMP) they create is extremely high. Note that an athlete's VMP is derived, in part, from the high demand and resulting high price spectators are willing to pay to see professional sports entertainment.
If employees are more productive, their wages will likely be higher.
True If employees are more productive, the value of their marginal product will increase. If so, their wages are likely to be higher.
Even if the price of the output that labor produces equals $20, rather than the $10 shown in the following table, the firm should still hire five workers using cost-benefit analysis.
True Marginal profit will now be positive for the fifth worker, but still negative for the sixth worker since hiring that worker contributes nothing to output. This is because the value of the sixth worker's marginal product is zero, while it still costs $100 for the firm to employ that worker.
Jermaine's boat factory recently outsourced its boat production from city A to city B. What could be a short-term consequence of outsourcing production?
Workers who worked in city A's boat factory will be unemployed. Unemployment may increase in city A in the short term, but many workers will eventually be able to find a job in a different industry.
What is the definition of derived demand?
demand for goods and services that are factors of production for other goods and services Derived demand is the demand for resources needed to produce a finished good or service in another market. A single product can have many derived demands. For example, bike producers need wheel spokes, but they also need rubber for the tires and metal for the frame, gears, and chain.
Demographic factors, such as _____, play an increasingly important role in the supply of labor. In the United States, for example, there are over _____ legal immigrants in the population. Migration patterns also affect the labor supply. While the U.S. population grows at an annual rate of approximately _____, some regions are growing more quickly than others. According to the most recent census, the 10 fastest-growing states were in the South or _____.
immigration, 40 million, 1%, West Immigration and migration have a significant impact on the available supply of workers each year.
If recent demographic studies show that 18-24-year-olds are increasingly not attending college or university and entering the workforce after high school, the supply of labor will likely _____, , since there will be more people available to work and a higher labor force _____ rate. This represents a change in the supply of labor due to _____.
increase, participation, the changing composition of the workforce The supply of labor for less-skilled jobs would likely increase because young people have less experience than people who have been in the workforce for many years.
A firm can determine whether or not it is using its resources efficiently by calculating the value of the _____ for each resource and dividing it by the _____ of that resource. This will tell the firm the _____ of each factor of production. The firm can then decide to increase or decrease its use of each factor of production. When the revenue per dollar spent is _____, the firm will be using its resources in the most efficient manner.
marginal product, cost, bang per buck, equal for all resources A firm does not want the bang per buck of its resources to be too high or too low. The company will adjust how it uses each factor of production until the relative benefits of all resources are the same.
Jennifer runs a landscaping business. She is about to buy a new mower that she expects will last her three years. Compared to model A, which is similar to the mower Jennifer is currently using, model B costs $1,500 more but will save about $200 in gas each year. It will also allow her to earn $10 more each week because it mows faster, which allows her to work on more lawns. Which model should Jennifer buy, and why?
model B, because it will improve Jennifer's bottom line by $660 over three years The lawnmower will save $600 in gas over three years and Jennifer will collect $520 more in payments each year. The total of $2,160 is $660 more than the $1,500 cost premium of the better model.
Income is generated through the _____ of goods and services. In the United States, _____ of all income takes the form of wages and salaries. The remaining _____ goes to those who own the other factors of production, namely _____ and capital.
production, two-thirds, one-third, land Wages and salaries are paid in exchange for labor, while rents and interest payments are, respectively, the means to compensate providers of land and capital resources.
When demand for workers in a certain profession increases, wages will _____. When employers find it _____ to find employees, workers' wages will be higher. If the supply of workers is too high, wages will _____ until the market reaches _____. In short, an increase in labor demand puts _____ pressure on wages, while an increase in labor supply puts _____ pressure on wages.
rise, difficult, fall, equilibrium, upward, downward Just as high demand for a product causes high prices, high demand for a particular type of worker will cause wages to increase.
Keith will need to compare the _____ to the _____ he pays each employee. If the cost to hire an employee is less than the revenue that employee can produce, Keith should _____ hiring employees because he will continue to be _____.
value of the marginal product of labor, wage, continue, profitable By comparing the costs of hiring an employee with the benefits of an extra employee, a manager can figure out if it is a good idea to hire a new person.