Economics of Factor Markets

These flashcards cover key concepts related to the economics of factor markets, focusing on the demand and supply for labour, effects of minimum wage laws, and the dynamics involved in the labour market.

Factors of Production

Inputs used to produce goods and services, including land, labour, and capital.

Derived Demand

The demand for a factor of production that arises from its relationship to the demand for the final goods and services it helps to produce.

Marginal Product of Labour (MPL)

The increase in output resulting from the hiring of an additional unit of labour.

Diminishing Marginal Product

The principle that as the quantity of an input increases, the marginal product of that input decreases, holding other inputs constant.

Value of the Marginal Product (VMP)

The additional revenue generated from employing one more unit of a factor of production, calculated as VMP = P x MPL.

Equilibrium Wage

The wage rate at which the quantity of labour supplied equals the quantity of labour demanded in the market.

Labour Supply Curve

A graphical representation showing the relationship between the wage rate and the quantity of labour that workers are willing to supply.

Monopsony

A market structure where there is a single or dominant buyer, particularly relevant in contexts of labour markets.

Minimum Wage Laws

Regulations that establish the lowest wage an employer can legally pay to workers.

Efficiency Wages

The theory that higher wages can lead to increased productivity, reduced turnover, and better worker quality.

Discrimination in Labour Markets

Unequal opportunities in the marketplace offered to similar individuals based solely on personal characteristics such as race, gender, or age.

Human Capital

The skills, knowledge, and experience possessed by an individual, viewed in terms of their value to an organization.

Labour Market Equilibrium

The point at which the quantity of labour demanded equals the quantity of labour supplied, determining the equilibrium wage.

Shifts in Labour Demand

Factors that cause the demand for labour to increase or decrease, such as output price changes or technological advancements.

Opportunity Cost of Leisure

The amount of money that would have been earned if the time spent on leisure activities had been dedicated to work.