Chapter 16: Factors of Production
Why does the word capital sometimes refer to financial
Because you can invest in a business who then uses the money to buy physical capital
Income effect (wage)
Decrease in labor supply due to the greater demand for leisure caused by higher income
the gains that workers and owners of capital receive from supplying their labor or machinery in factor markets
economic rent
a wage that is deliberately set above the market rate to increase productivity
efficiency wage
the ingredients that go into making a g/s
factors of production
The buyers in factor markets are
firms that want to use factors to produce g/s
Demand for a factor of production depends on what
how much that factor will contribute to value of end product
the set of skills, knowledge, experience, and talent that determine the productivity of workers
human capital
Ownership of productive resources determines
income
Any event that increases the value of marginal product will ____ demand
increase
Changes that decrease the OC of work or increase the number of workers will ______ labor supply
increase
When there are more potential workers, labor supply _____
increases
When technology changes are labor-augmenting, MPL _____ and demand _____
increases increases
If output prices increase, VMPL ____ and demand ______
increases increases
A higher wage increases the benefit of an additional hour of work, but also
increases the OC of working
The rental price of financial capital is ____
interest
If you hire more people, it is _____ intensive
labor
three factors of production
land, labor, capital
When a worker has a rare skill, labor supply in that market is
low
Stricter border controls lead to ___ labor supply
lower
the increase in output that is generated by an additional unit of input
marginal product
the quantity of additional output generated by the worker
marginal product of labor
2 exceptions that can push wage rates above the market equilibrium point
minimum wages and efficiency wages
a market in which there is only one buyer but many sellers
monopsony
When deciding whether or not to supply another hour of labor, think about the
opportunity cost (leisure v. money)
If one type of land has a higher marginal productivity, we will
pay more for it
The sellers in factor markets are
people who own factors of production
When wage increases, the budget line
pivots out
Land is the _____ where employees work
place
3 determinants of supply of labor
population culture other opportunities
The wage that workers earn is the ____ of labor
price
In most cases, which effect will dominate
price effect
Minimum wage is an example of a
price floor
In most markets, when price increases, so does
quantity supplied
When a firm wants to use land or capital, it can ____ or _____
rent or buy
Individuals who work are ____ of labors. Firms that produce goods using those workers are ______ of labor
suppliers buyers
The price of each factor is determined by
supply and demand
If the market is already inefficient and the minimum wage is below the equilibrium level, what may happen
surplus may be transferred from employers to workers
determinants of labor demand
technology supply of other factors output prices
Labor is the ____ employees spend working
time
INputs usually have ______ marginal productivity
diminishing
When the income effect dominates, the labor supply is
downward sloping
Price effect (wage)
Increase in labor supply in response to higher wage that can be earned for each hour of work
How to calculate VMPL
Marginal product x price of output
What will happen if wages drop below the market equilibrium level
More labor demanded than supplied. Higher wages will need to be offered, increasing quantity of labor supplied and decreasing quantity demanded
A competitive firm should keep hiring as long as the
VMP is greater than or equal to the worker's wage
If you buy more machines, it is _____ intensive
capital
manufactured goods that are used to produce new goods
capital
Any event that decreases the value of marginal product will ____ demand
decrease
Changes that increase the OC of work or decrease the number of workers will _____ labor supply
decrease
If output prices decrease, VMPL ______ and labor demand _____
decreases decreases
When technology changes are labor saving, MPL ___ and demand _____
decreases decreases
Minimum wage causes
unemployment
When the price effect dominates, the labor supply is
upward sloping
the increase in revenue generated by the last unit of an input
value of marginal product
The marginal cost of the last worker is the worker's annual
wage
Equilibrium is found where
where supply and demand intersect
IF MR is greater than wage, should you hire
yes
