Chapter 16 Factors of Production

The _____, the largest such union organization in the United States, is a confederation of unions that represents 13 million workers, ranging from pilots and bricklayers to actors and police officers.

AFL-CIO

The Factors of Production:

Land, Labor, and Capital

Suppose your friend wants to become a doctor. Which of the following is not an example of some of the human capital required to achieve this goal?

Obtain a stethoscope and other medical equipment

The value of the marginal product, which is ________, decreases for each additional worker because the ______ decreases for each additional worker.

[MPL x Pproduct]; MPL

efficiency wage

a wage that is deliberately set above the market rate to increase worker productivity

In deciding whether the opportunity cost of not being able to work another job outweighs the benefits, the worker will have to consider not only the wages each other job offers, but also

any other perks of each job.

A minimum wage might not be the cause of unemployment if the minimum wage is________the equilibrium level.

below

The main ____ for workers when supplying labor to firms is the income they can earn.

benefit

Someone who owns physical capital is a

capitalist

For a _____ firm, the price of the output is always going to be the same.

competitive

the determinants of labor supply include

culture, population, and other opportunities

Changes that increase the opportunity cost of work or decrease the number of workers

decrease the labor supply, shifting the curve to the left.

Any event that decreases the value of the marginal product will _______ demand, shifting the labor demand curve ______

decrease; left

Changes that increase the opportunity cost of work or decrease the number of workers will ______ the labor supply, shifting the supply curve ______

decrease; left

When the marginal product of labor decreases, labor demand

decreases

The value of the marginal product is identical to the firm's ____ curve for labor.

demand

The income effect occurs when workers respond to higher incomes by

demanding more leisure

The demand for labor is_____from the demand for goods and services.

derived

The demand for factors of production is referred to as

derived demand

Sometimes ownership of physical capital is_______, as in ownership of a factory; often it is_________as in ownership of stocks.

direct; indirect

If the minimum wage is below the equilibrium level, the effect might transfer surplus from

employer to worker

A competitive firm should keep hiring as long as the value of the marginal product is greater than or

equal to the marginal cost of the worker (the worker's wage)

How much income people get from labor compared to land and capital is the Multiple choice question.

factor distribution of income

Economists refer to the pattern of income that people derive from different factors of production as the

factors of distribution

Because of the opportunity cost of working, if workers get paid more per hour, they tend to work _____ hours.

fewer

An effective minimum wage is an example of a price______in which the quantity______decreases and the quantity_______increases compared to equilibrium levels.

floor; demanded; supplied

The question of how much labor a firm will hire comes down to whether added workers are

generate more revenue than it would cost to hire them

In taking college courses, you are acquiring

human capital

If product demand_____it will_______the product price, increasing the value of the_________product, shifting labor________curve to the right.

increase; raise; marginal; demand

Any event that increases the value of the marginal product will _____ demand, shifting the labor demand curve _____

increase; right

Changes that decrease the opportunity cost or work or increase the number of workers will _______ the labor supply, shifting the supply curve to the _______

increase; right

Labor

is the time employees spend working

labor demand is determined by the value of the marginal product of

labor

The cost of supplying labor is the forgone opportunity of forgone

leisure

Since the firm is a price-taker in a competitive market, the firm cannot control the going price of inputs or the going wage of workers, so maximizing profit is focused on

making the right choice on the quantity to produce

Capital:

manufactured goods that are used to produce new goods

A change in the supply of other factors can change the______product of labor.

marginal

The increase in output that is generated by an additional unit of input is called

marginal product

A reduction in the_____product of labor would shift the entire_______curve to the left

marginal; demand

To raise wages or improve non-wage benefits and capture some surplus for workers, unions must have, at a minimum, a_________or near________on labor in a particular market.

monopoly; monopoly

Normally, when higher wages are offered, people will want to work_______, and the quantity of labor supplied will increase.

more

So long as the benefit of another hour of work exceeds the opportunity cost of work

more labor should be supplied.

An analysis that implies that the existing factor distribution of income is, or is not, fair in a broader sense is a

normative analysis

A higher wage means more income but also increases the_______cost of working.

opportunity

In deciding whether the ____ cost of not being able to work another job outweighs the benefits, the worker will have to consider not only the wages each other job offers, but also any other perks of each job.

opportunity

This is because:

otherwise, workers will move between markets

The purchase price is what a producer pays to

permanent ownership of a factor of production

When people talk about investing money, they mean that they have lent their money to someone who will use it to buy______capital

physical

A firm in a competitive market maximizes____ by producing the quantity at which the revenue it earns from the last unit is equal to the cost of producing that unit.

profit

The area above the supply curve but below the equilibrium rental price is economic

rent

The ______ price is what a producer pays to use a factor of production for a certain period or task; the _______ price is what a producer pays to gain permanent ownership of a factor of production.

rental; purchase

A firm in a competitive market maximizes profits by producing the quantity at which

revenue it earns from the last unit is equal to the cost of producing that unit.

Any event that increases the value of the marginal product shifts the labor demand curve to the

right

Changes in non-price determinants cause a______ in the supply and demand curves for labor.

shift

Any event that decreases the value of the marginal product

shifts the labor demand curve to the left.

Wages in interconnected markets are likely to be

similar

Individuals who work are the _____ of labor; firms that produce goods using those workers are the _______ of labor.

suppliers; buyers

The number of workers and the opportunity cost of providing their labor determine labor

supply

many shifts in the labor demand curve can be traced to 3 determinants

supply of other factors technology output prices

the _____and _____ curves for _____ can shift right or left with changes in non-price determinants

supply; demand; labor

marginal product of labor:

the change in quantity of a good produced due to hiring one additional worker

The income effect describes

the decrease in labor supply due to the greater demand for leisure caused by a higher income

Maximizing profit in a competitive market is focused on making the right choice about the quantity to produce because

the firm is a price-taker and cannot control the price of inputs.

economic rent:

the gains that workers and owners of capital receive from supplying their labor or machinery in factor markets

The price effect describes

the increase in labor supply in response to the higher wage that can be earned for each hour of work

marginal product

the increase in output that is generated by an additional unit of input

value of marginal product

the increase in revenue generated by the last unit of an input; calculated as the output generated by an input (marginal product) times the unit price of the output

factors of production:

the ingredients that go into making a good or service

at any given wage, labor supply is determined by

the number of workers and the opportunity cost of providing their labor

Land:

the place where employees work

At equilibrium in the labor market:

the quantity of labor supplied is equal to the quantity of labor demanded

for a competitive firm, the price of the output is always going to be

the same

human capital

the set of skills, knowledge, experience, and talent that determine the productivity of workers

Labor markets are most likely to be interconnected when:

the skills required in each market are similar.

In some cases when the labor market is inefficient, a minimum wage appears to cause a small amount of________In others, it seems to change who is

unemployment; employed

In general, labor supply curves are usually This is true because usually:

upward sloping the price effect exceeds the income effect.

When the marginal product of labor is multiplied by the market price of the product, the result is the

value of the marginal product

The firm's demand curve for labor is identical to the

value of the marginal product curve.