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.