Ch. 18 AP Microeconomics ( The Markets for the Factors of Production)

Monopsony

A market with only one buyer or employer of a factor of production. Is similar to a monopoly just in the opposite sense. Causes deadweight losses because the single buyer would limit the factors of employment in order to increase profit, and prevent reasonable transactions from taking place.

Dividends

A part of a company's profit that is divided among the people with shares in the company

Land

All natural resources that are used to make goods and services, factor of production

Stockholder

An owner of one or more shares of a corporation

Capital

Assets available for use in the production of further assets, serve as an investment, for example factory equipment

Derived Demand

Business demand that ultimately comes from (derives from) the demand for consumer goods. Describes the demand of all factors of production.

CPI

Consumer Price Index (changes in average price of consumption the or cost of living). , (Total Cost this Period/Total Cost Base Period) x 100

Neoclassical theory of distribution

Economic theory that states that the amount paid to each factor of production depends on the supply and demand for that factor, with the derived demand. In equilibrium, each factor of production earns the value of its marginal contribution to the production of goods and services.

Wage

Equals the value of the marginal product o labor and adjusts to balance the supply and demand of labor.

capital income

Income earned on savings that have been put to use through financial capital markets.

Rental Price

Is the price a person pays to use that factor for a limited period of time. Distinguished from purchase price.

Factors of production

Land, labor, and capital(LLC), sometimes entrepreneurial ability ; the three groups of resources that are used to make all goods and services

Labor

The effort that people devote to a task for which they are paid, is a factor of production. The most important factor of production because it creates the most income.

marginal product

The equilibrium rental income at ant point in time equals the value of that factors _________ ______.

Labor market

The input/factors of production market in which households supply work for wages to firms that demand labor.

Production Function

The relationship between quantity of inputs used to make a good and the quantity of output of that good

labor income

The sum of wages, salaries, and fringe benefits paid to workers

Real Wage

The wage paid to workers measured in terms of purchasing power; the real wage for any given period is calculated by dividing the nominal (dollar) wage by the CPI for that period, is usually linked directly with productivity.

Purchase Price

_________ _______ of land and capital is the price a person pays to own the factor of production indefinitely. Distinguished from the rental price.

value of marginal product

marginal product times market price; demand curve for labor augmenting

Marginal product of labor

the change in output from hiring one additional unit of labor

diminishing marginal product

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