Ap micro section 13

3 sources of wage differences across occupations and individuals

1 compensating differentials 2 talent 3 human capital

Compensation of employees is really

A return of human capital.

When you own stock in a company you really own

A share of that company's physical capital.

Efficiency wages

A type of incentive scheme used by employers to motivate workers to work hard and to reduce worker turnover. Type of market failure.

Why does a person with more human capital for a greater marginal product

Because they can produce more or better products

To maximize profit a company should hire up to....

But not beyond the point at which the value of the marginal product of the last worker employed is equal to the wage rate.

Since most factor markets are perfectly competitive what does this mean

Buyers and sellers are price takers because they are too small relative to the market to do anything but accept the market price.

What are the factors that cause the labor supply curve to shift

Changes in preferences and social norms Changes in population Changes in opportunities Changes in wealth

What are the 3 main causes of a shift in the factor demand curve?

Changes in prices of goods Changes in the supply of other factors Changes in technology

If there are several alternative output combinations that can be used to produce the optimal level of output a profit maximizing firm will select the input combination with the lowest cost what is this known as

Cost minimization

Time allocation

Decision about how much labor to supply involves making the decision of how many hours to spend on different activities

Demand in factor market is what

Derived demand

Why does the marginal product of labor curve slope downward

Diminishing returns to labor in production. Value of marginal product of each worker is less than that of the preceding worker because the marginal product of each worker is less than preceding worker.

If the income effect dominates the individual labor supply curve the curve will slope

Downward

The value of marginal product curve slopes in what direction?

Downward

Which direction do the demand curves for land and capital of Individual firm go? And why?

Downward Diminishing returns

The competitive firm marginal revenue equals price so the VMPL

Equals MRPL

In land market, each unit of land will be paid in the

Equilibrium value of the marginal product of land. Same with capital

Marginal productivity theory of income distribution

Every factor of production is paid the equilibrium value of its marginal product

Marginal productivity theory

Helps to explain how income is divided among factors of production in the economy

Distribution of income

How the economic "pie" is sliced among different groups due to the prices of factors of production.

Factor of distribution of income

How the total income of the Econ is divided among land labor capital and entrepreneurship. determined by factor prices.

Even if you own land or capital there still is what kind of cost?

Implicit cost or opportunity cost because it could be used for something else. Such as: renting it out to other firms at market rental rate.

Marginal product of labor

In increase in output from employing one more worker. Depends on number of workers employed.

At higher wage rates which effect dominates

Income

Increase in wage rate leading to a decrease in quantity of labor happens under which effect? And what happens to the curve?

Income effect Movement up curve. NO SHIFT

High demand for workers will do what to wages

Increase them

Technology does what to the marginal product?

Increases

Employers use equilibrium wage is to motivate their employees But lead to what kind of outcome

Inefficient

Where is the equilibrium found in the capital and land markets?

Intersection of supply and demand curves

Equilibrium value of the marginal product

Is the additional value produced by the last unit of that factor employed in the factor market as a whole

MRPL Is a more general term then the VMPL because

It applies to firms in both perfect and imperfect competition

What is the value of the marginal product or labor curve in relation to the firm?

It's their demand curve.

Marginal product=wage situation doesn't just apply it also applies to

Land and capital

What has happened to demand for labor over long run in U.S.?

Large wage increases and increases in employment so this suggests that demand has increased.

Factor markets are where most people get

Largest shares of our income

When superior alternatives arise for workers in another labor market the supply curve of origins labor market shifts

Left

Increased purchasing power comes at the expense of

Leisure

How do you calculate cost minimization rule

MPL MPK (capital) ------- = ------------------ W Rental rate

Price taking firm or most firms in factor markets produce when

Marginal cost is equal to the market price

Sometimes the marginal product is called the

Marginal physical product or mpp they are the same though

The marginal revenue product of labor is

Marginal product of labor multiplied by the marginal revenue received from selling an additional output

The demand curve for a firm operating in a imperfectly competitive product market is the

Marginal revenue product of labor

Example: when the labor market for computer programmers is in equilibrium the wage rate earned by all computer programmers is equal to the....

Markets equilibrium value of the marginal product or the value of the marginal product of the last computer programmer hired to the market.

Factor markets

Markets in which factors of production are bought and sold

More hours worked means

More goods they can afford to buy

Who creates a higher value of the marginal product a worker with a higher talent or worker with less talent

More talent

If wage rate is higher/lower do you shift the curve or move up or down it

Move up or down it

If the price of a good changes does the wage rate have to change too?

No

When the marginal product is less than the cost of that worker should the company employ them?

No

Is the process of finding the VMPL limited to only labor

No it can be used with any factor of production

In factor markets is every unit of each factor identical

No. There are different types of land labor and capital.

Leisure can be considered what kind of good?

Normal because people will consumer more of it as their income increases

On the value of the marginal product curve what is on horizontal axis

Number of workers employed

Physical capital

Often referred to as capital. Consists of manufactured resources such as equipment, buildings, tools and machines.

How do you find value of the marginal product of labor?

P x MPL

Most factor markets in modern economy are usually what

Perfectly competitive

Factor prices

Prices in factor markets

After finding optimal quantity of output go back to ______ to find_______

Production function Optimal number of workers. Just number of workers needed to produce the optimal quantity of output.

Supply curve for capital is

Relatively elastic because supply of capital is relatively responsive to price.

Supply curve for land is

Relatively inelastic because finding new supplies of land is difficult and expensive

More population will shift the labor supply curve

Right Smaller- left

Capital is typically paid for by

Savings of investors and the amount of savings that investors make available is relatively responsive to the rental rate of capital

Income effect caused by a change in wealth will do what to labor supply curve

Shift it. Income effect of wage rate causes movement

Decrease in price does what to VMPL curve

Shifts it downward

Increase in price does what to VMPL curve

Shifts it upward.

If a farmer has more land for its employees to work with what happens to the VMPL curve

Shifts upward. Opposite occurs when less land

How has the factor distribution of income been in U.S.

Stable over past few decades.

At lower wage rates which effect dominates

Substitution

Increase in wage rate leading to increase in quantity of labor occurs under which effect? What happens with the curve?

Substitution Movement up curve. NO SHIFT

What type of advancements have boosted importance of human capital

Technological

When looking at shifts related to changes in price..... If the price changes then

The VMPL does too.

The decision whether to rent an additional piece of equipment comes down to the comparison of the additional cost of the equipment with....

The additional output it generates.

When product market it perfectly competitive the wage rate is equal to

The cable of the marginal product of labor at the equilibrium

A profit maximizing firm employs additional units of land and capital until...

The cost of the last unit employed explicit or implicit is equal to the value of the marginal product of that unit.

Derived demand

The demand for the factor is derived from demand for the firms output

Marginal productivity of Income distribution

The division of income among the econs factors of production is determined by each factors marginal productivity at the market equilibrium

Rental rate

The explicit or implicit cost of renting a unit of land or capital for a set period of time.

Human capital

The improvement in labor created by education and knowledge that is embodied in workforce.

If a farmer wants to rent more land he will continue to rent more land until

The marginal product of an acre of land is equal to the rental rate per acre.

A profit maximizing for minute improving the competitive product market employees each factor of production up to the point at which

The marginal revenue product of the last unit of the factor employed is equal to that factors cost

How does monopolist calculate it's demand for workers

The monopolist must multiply the marginal product of labor by the marginal revenue received by selling an additional output

The benefit the firm receives from employing another worker is

The value of extra output that worker can produce.

Profit maximizing price taking firms will keep adding more units of each factor of production until....

The value of the marginal product of the last unit employed is equal to the factors price.

Leisure

Time spent not working or earning money

When workers paid more than the equilibrium wage or premium this motivates the worker

To not leave job and preform well Because it would costly for them to change jobs. Also known as efficiency wage model

Substitution effect dominated the individual supply curve causes the curve to slope...?

Upward

A firm can always increase profit by employing one more unit of a factor of production as long as the

Value of the marginal product produced by that unit exceeds the factor price.

What factor does NOT cause a shift in the labor supply curve

Wage

Increase in cost in employing another workers is the

Wage rate

Individual labor supply curve

Wage rate on y Q of labor on x

On the value of the marginal product curve what is on vertical axis

Wage rate or VMPL

When will the supply curves for land and capital shift?

When product becomes more or less available. Because of diminishing returns, marginal product will then change too S increase mp decreases

In a competitive labor market it's clear how to define the marginal cost an employer pays for a worker

Workers wage

If the VMPL > W then should they employ another worker

Yes

When it is considered that there are separate factor markets for different types of factors does the marginal productivity theory of income distribution still hold?

Yes.

Unions

Are organizations of workers that try to raise wages and improve working conditions for their members by bargaining collectively.

Compensating differentials

Are wage differences across jobs that reflect the fact that some jobs are less pleasant or more dangerous than others