AP Microeconomics: Factor Markets

Derived demand

demand for resources is derived from demand for products those resources make, don't directly go to customers

Factor market

market in which the factors of production are bought by firms and sold by households

Marginal Revenue Product

added revenue a firm gains when employing an additional unit of a factor. Change in TR divided by a change in the quantity of the factor in question (labor)

marginal resource cost

cost of employing one additional unit of a factor; change in TC divided by change in quantity of the factor in question (labor)

perfectly competitive market firm is wage ___

taker, companies will pay roughly the same all across the board

wage

price of labor per unit of time

wage taker

firms who hire labor in perfectly competitive labor markets are wage takers; they can hire any quantity of workers desired for a market wage rate

Unions

organizations of workers who seek to increase the wage rates, working conditions, and number of jobs available in their industries

input maximization rule

MRP = MRC

demand curve

MRP curve

output price goes up causes

demand for labor to go up

labor augmenting

new technology makes workers more valuable increase the demand for them

labor-saving

new technology makes workers less valuable decreases the demand for them

a decrease in complimentary equipment

decrease in demand for workers

increase in complimentary equipment

increase in demand for workers

substitution effect

if price of substitute for worker falls less labor will be demanded

output effect

costs to produce decrease so more labor is needed

MRP>MRC

employ more

MRP

cut back

MRC represents

wage rate, horizontal