Chapter 16: Factors of Production

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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


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