Economics - Mankiw Ch18 Production Factors Market

labor markets are different from most other markets because labor demand is a _______ demand.

derived

The demand for a factor of production is a ______ demand, as a result of

derived decision to supply a good in another market. rather than being final goods ready to be enjoyed by consumers

Capital income is the rent that

households receive for the use of their capital.

The labor-supply curve reflects

how workers' decisions about the labor-leisure trade-off respond to a change in that opportunity cost.

Different forms of capital income are

interest income to households lent money to firms through banks. Dividend.

Dividends are

payments by a firm to the firm's stockholders.

The supply of a factor falls, its equilibrium factor price _____

rises.

production function is

the relationship between the quantity of the inputs used in production and the quantity of output from production.

capital to refer to

the stock of equipment and structures used for production. the accumulation of goods produced in the past that are being used in the present to produce new goods and services. eg. ladder, truck, building

To find the worker's contribution to revenue, we must convert the marginal product of labor (which is measured in bushels of apples) into

the value of the marginal product (which is measured in dollars).

when a competitive firm hires labor up to the point at which

the value of the marginal product equals the wage, it also produces up to the point at which the price equals marginal cost.

the price paid to any factor of production—labor, land, or capital—equals

the value of the marginal product of that factor.

a competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals

the wage.

A firm retain some earnings within the firm and use these earnings

to buy additional capital.

Capital is paid according to the ________________, regardless of whether this income is transmitted to households in the form of interest or dividends or whether it is kept within firms as retained earnings.

value of its marginal product

highly productive workers are highly paid, and less productive workers are less highly paid because

wages equal productivity (measured by the value of the marginal product of labor.)

Causes that shift Labor-Supply curve

1) Changes in Taste - women work more than in the past. 2) Changes in Alternative Opportunities - pear picker's wage vs. apple picker's. 3) Immigration

In study of labor demand by the firm, we set 2 assumptions:

1) Firm is competitive both in selling apple and buying labor - price taker in both roles. 2) Firm is profit maximizing. - care only profit as deicision making criteria.

Labor demand curve shift due to

1) Output price change - apple price increase will hire more workers 2) Technological change - machine replace workers, 3) Supply of other factors (compliment input factors - supply of ladder for apple pickers)

wage is the rental price of labor, same concept applies to the rental prices of land and capital.

Like wage, the firm increases the quantity hired of land and capitaluntil the value of the factor's marginal product equals the factor's price. Thus, the demand curve for each factor reflects the marginal productivity of that factor.

a profit-maximizing firm chooses the quantity of labor so that the value of the marginal product equals the wage.

P × MPL = W P = W/MPL P = MC

monopsony

a market with one buyer. It hires fewer workers than would a competitive firm; by reducing the number of jobs available, the monopsony firm moves along the labor supply curve, reducing the wage it pays and raising its profits.

A stockholder is

a person who has bought a share in the ownership of the firm and, therefore, is entitled to share in the firm's profits.

An upward-sloping laborsupply curve means that

an increase in the wage induces workers to increase the quantity of labor they supply.

Luddite refers to

anyone who opposes technological progress

labor-supply curve need not be upward sloping because

at the higher wage, one might choose to work fewer hours.

value of the marginal product

is the marginal product of that input multiplied by the market price of the output.

Because of diminishing marginal product, a factor in abundant supply has a low marginal product and thus a ____ price, and a factor in scarce supply has a high marginal product and a ____ price.

low, high

Any event that changes the supply or demand for labor must change

the equilibrium wage and the value of the marginal product by the same amount because these must always be equal.

marginal revenue product is

the extra revenue the firm gets from hiring an additional unit of a factor of production.

marginal product of labor is

the increase in the amount of output from an additional unit of labor.

factors of production

the inputs used to produce goods and services.

the value-of-marginal-product curve is

the labor-demand curve for a competitive, profit-maximizing firm.

the price of the firm's output is equal to

the marginal cost of producing a unit of output.

purchase price of land or capital is

the price a person pays to own that factor of production indefinitely.

rental price is

the price a person pays to use that factor for a limited period of time.

diminishing marginal product is

the property whereby the marginal product of an input declines as the quantity of the input increases.

product of any factor depends on

the quantity available of that factor.