Chapter 11: Markets for Factors of Production
The value of marginal product of labor (VMPL) is ____________.
- the contribution of an additional worker to a firm's revenues. - given by the marginal product of labor times the price of the firm's output.
What are the 3 sources of wage differentials (Wage Inequality)?
1.) Differences in human capital 2.) Differences in compensation wages 3.) Discrimination in the job market
the price of using a good for a specific period of time.
Rental Price
is the contribution of an additional unit of physical capital to a firm's revenues.
Value of Marginal Product of Physical Capital
A production function shows ____________.
the number of workers employed and the corresponding output levels that will be produced.
In a competitive labor market, the profit-maximizing number of workers that a firm will hire occurs where the ____________.
value of marginal product of labor is equal to the market wage.
How does the market for inputs like labor differ from the market for goods and services? (Check all that apply.)
- The demand for inputs is derived from the demand for final goods and services. - Firms are buyers in the market for inputs, while individuals are buyers in the market for goods and services. - Firms are sellers in the market for goods and services, while individuals are sellers in the market for inputs.
Human capital is the __________.
- skills and knowledge that people obtain by furthering their schooling. - experience that people derive from spending more time on a job.
Why are wages different?
1.) Differences in human capital 2.) Differences in compensating wages 3.) The nature and extent of discrimination in the job market.
What are the labor shifts for the supply curve?
1.) Population changes 2.) Changes in worker preferences and tastes 3.) Opportunity Costs
What are the labor shifts for the demand curve?
1.) Price of the good the firm produced 2.) Technology used in production
What are the 3 Factors of Production?
1.) land 2.) labor 3.) capital
How does the labor-leisure trade-off determine the supply of labor?
An increase in the wage rate is an increase in the opportunity cost of leisure, and can therefore be expected to reduce the amount of leisure one wishes to consume. Choosing less leisure is equivalent to supplying more labor, thus yielding a positive relationship between the wage rate and the amount of labor supplied.
Occurs when women move up in the workplace and try to close wage gaps and discrimination.
Breaking the glass ceiling
are wage premiums paid to attract workers to otherwise undesirable occupations.
Compensating Wage Differentials
In the labor market, __________ are the suppliers of labor and _________ are the demanders of labor.
Consumers, Firms
Means the MOST workers are to produce a good or service to be sold to a consumer.
Derived Demand
Which of the following is not an important determinant of wage inequality within an economy?
Differences in connections to influential people.
is each person's stock of skills to produce output or economic value.
Human Capital
Maximizing Profit: In choice of how many workers to hire MP X P= W or VPML= W
Input Market
What is the MAJOR factor of production?
Labor
are those components existing labor inputs, increasing the marginal product of labor.
Labor-saving Technologies
it is a type of technology that substitutes for labor inputs, reducing the marginal product of labor.
Labor-saving Technology
includes the solid surface of the earth where structures are built and natural resources.
Land
Maximizing Profit: In choice of how much to produce MR= MC
Output Market
increase the productivity of skilled workers relative to that of unskilled workers.
Skill-biased Technological Changes
occurs when expectations cause people to discriminate against a certain group.
Statistical Discrimination
occurs when people's preferences cause them to discriminate against a certain group.
Taste-Based Discrimination
occurs when people's preferences cause them to discriminate against a certain group.
Taste-based Discrimination
Some people think it's unfair that celebrities like Kim Kardashian earn a lot more than people who add so much more value to society, like teachers. What do you think explains this wage differential?
The economic output of celebrities like Kim Kardashian adds more economic value to firms than those services provided by teachers.
A friend tells you that he thinks that the salespeople who work at Apple stores are paid very low wages, given their productivity. Dividing Apple's revenues by the total number of employees shows that each employee contributed an average of $473,000 in revenues in 2011. But most of Apple's sales staff are paid about $25,000 a year. What is the flaw, if any, in your friend's reasoning?
The wage is equal to the value of the worker's marginal product, not revenue per worker.
What is the formula for VMPL?
VMPL= MP X Output Price
How much each additional unit of capital contributes to the firm's revenues.
Value of Marginal Product of Capital (VMPS)
it is equal to the marginal product of labor times the price.
Value of Marginal Product of Labor (VPML)
the contribution of an additional worker to a firm's revenue
Value of Marginal Productivity of Labor
Is the relationship between output and labor consistent with the Law of Diminishing Returns?
Yes, the marginal product declines as successive units of labor are hired.
When the firm's VMPL is plotted in a diagram with the quantity of labor measured along the horizontal axis, the resulting curve will be downward-sloping and constitutes the firm's ____________________.
demand curve for labor
Suppose the demand for economics courses at your school decreases, all else constant. In this case, the school's administrators will seek to hire ____________ economics instructors.
fewer
Compensating wages are the wage premiums ___________.
paid to attract workers to occupations to otherwise undesirable jobs.
The owner of a company that manufactures automobile parts states that it will not hire gay or lesbian employees. This is an example of ___________________________. .
taste-based discrimination
Derived demand is the demand a firm has for ____________.
the factors of production that enable it to produce output that is sold in product markets.
According to the Law of Diminishing Returns, ____________.
the marginal productivity of an additional unit of labor eventually decreases as the quantity of labor increases.