Chapter 8: Introduction to Labor Markets

Vocabulary flashcards covering the basic principles of labor economics, including supply and demand, productivity measures, and market interventions based on Chapter 8 lecture notes.

Labor Supply

The willingness and ability to work specific amounts of time at alternative wage rates in a given time period, ceteris paribus.

Opportunity Cost

The most desired goods or services that are foregone in order to obtain something else; in the context of labor, the amount of leisure time given up to work.

Market Supply of Labor

The total quantity of labor that workers are willing and able to supply at alternative wage rates in a given time period, ceteris paribus.

Demand for Labor

The quantities of labor employers are willing and able to hire at alternative wage rates in a given time period, ceteris paribus.

Derived Demand

Demand for labor and other factors of production that results from or depends on the demand for final goods and services produced by those factors.

Marginal Physical Product (MPP)

The change in total output associated with one additional unit of input, calculated as: $\text{Marginal Physical Product} = \frac{\text{change in total output}}{\text{change in quantity of labor}}$

Marginal Revenue Product (MRP)

The change in total revenue associated with one additional unit of input, calculated as: $\text{Marginal Revenue Product} = \frac{\text{change in total revenue}}{\text{change in quantity of labor}}$

Marginal Revenue

The change in total revenue that results from one more unit of the product being sold, distinct from MRP which focus on units of input employed.

Law of Diminishing Returns

The principle that the marginal physical product of a variable factor declines as more of it is employed with a given quantity of other fixed inputs.

Equilibrium Wage

The wage at which the quantity of labor supplied in a given time period equals the quantity of labor demanded.

Equilibrium Employment

The only sustainable level of employment in a market, established at the intersection of market supply and demand curves.

Opportunity Wage

The highest wage an individual would earn in his or her best alternative job.

Raise the Wage Act of 2017

A bill submitted to the House of Representatives proposing to increase the minimum wage from $7.25$ to $9.25$ immediately, eventually reaching $15$ an hour by 2024.

Nick Saban

The coach of the Crimson Tide football team whose $74$ million dollar contract reflects high Marginal Revenue Product due to the revenue successful coaches bring to colleges.

Bob Iger

The Disney CEO whose compensation of more than $400$ million dollars has prompted public debate and calls for limits on executive compensation.

Labor Unions

Organizations that attempt to set aside equilibrium wages through collective action, often requiring the exclusion of some workers to maintain above-equilibrium wages.