AP Micro Unit 5 Factor Markets

wages, interest, rent

factors of production respond to factor prices including ________, _______ and ________.

suppliers

in resource markets, households are

demanders

in resource markets, firms are

the price of the good, the productivity of the resource being used

what determines the demand for a resource?

factor prices

prices of factors of production are known as ________ (wages, rent, etc)

supply and demand

factor markets can be analyzed by using

producers

factor prices allocate resources among

product market

market for goods and services

derived demand

a product market’s demand is

reduce their costs

firms seek to _________ for buying resources (resource prices play the main role in determine the quantities of land, labor, capital, and entrepreneurship that will be combined in producing each good or service)

allocation of resources

the efficient ___________ over time calls for the continuing shift of resources from one use to another (resource pricing is a major factor in producing those shifts)

wage takers

in a purely competitive resource market using resource demand, they are

resource demand

demand curve shows the amount of resource that buyers are willing and able to purchase at various prices over some period of time (derived from product demand)

derived demand

derived from the demand for the products that the resource helps to produce - distinguishes factor markets from goods and services market

marginal revenue product (MRP)

is the marginal revenue created by using one additional unit of resource (additional revenue one additional worker brings in)

MRP

is used to make critical decisions on business production and determine the optimal level of a resource, assumes that the expenditures on other factors remain unchanged

MRP = MP x Price

MRP equation

resource demand

MRP curve is the __________ curve for the individual firm

falls

MRP _____ as employment increases

hiring labor

for marginal revenue product, the wage rate is the cost of

inverse

there is a(n) _________ relationship between the price of a resource and the quantity of that resource firms will demand

increased

higher price of a good leads to an _________ demand for labor

decreased

lower price of a good leads to a _____________ demand for labor

increase

if workers become more productive, this would lead to an ___________ in the demand for labor

decrease

if workers become less productive, this would eat to a _________ in the demand for labor

demand for labor increases

demand for labor decreases

greater

greater demand for the good produced leads to _________ demand for the resources used to produce it

increase, increase

an _________ in productivity of labor leads to an __________ in demand for labor

price, productivity

demand for a resource is derived from both the __________ of the good being produced and the ________ of the resource labor itself

MRP in a monopoly

to sell more, must lower the price of the product

faster

in a monopoly, MRP falls at a ________ rate than with the perfect competitor

MRC = change in total cost / change in quantity of labor = wage

MRC equation

wage

if a factor market is competitive, MRC =

should

if MRP > or equal to MRC, the the resource _______ be used

fewer

if MRP < MRC, we should employ _________ resources

do not

a market in which a large number of firms are competing to hire an even larger number of workers; wages __________ increase with each additional worker

MRP = MRC

profit-maximizing quantity of labor

positive marginal profit

when MRP > MRC, the firm creates

MRP = MRC

a firm maximizes its profits by continuing to hire inputs used in production if MRP > MRC up until the profit maximizing point where

labor supply

there is a positive correlation between the wage rate in a particular industry and the number of workers willing and able to work in that industry

more

high wages will lead to _______ workers supplying their labor

equilibrium wage rate

determined by the supply and demand for labor

decreased

if competing industries offer higher wages, there will be _________ supply of labor

increased

if competing industries offer lower wages, there will be an __________ supply of labor

increase

reduced barriers will _________ the supply of labor

decrease

increased barriers will _________ the supply of labor

supply of labor increases

supply of labor decreases

MRP - MFC

marginal profit equation

increases

if the price of bread increases, MRP/Demand for bakers

increase

If the price of bread increases, the market demand for labor is going to

shortage

if wages don’t increase, there will be a _______ of workers

surplus

increased supply of labor creates a ________ of workers

decreases, shortage

when labor supply _______ at the original wage rate, there will be a ________ of labor

same

the firm needs to have a resource combination so that the marginal product per dollar is the _______ for all resources

MPl/Pl = MPk/Pk

the least-cost hiring rule in perfect competition is

monopsony

one buyer: a dominant firm that employs all of a certain type of labor

lower

in a monopsony, because of the lack of competition, workers typically have to work for ______ wages

higher

to hire more workers, a monopsony must offer ________ wages

MRP = MP x MR

mrp equation 2

upward sloping

in a monopsony, MRC curve is

increases at an increasing rate

TVC in a monopsony

greater

in a monopsony, MRC increases at a _______ rate than wage rate because the firm must raise wages for all workers in order to hire more workers

monopsonistic employer

fewer, less

in a monopsony, MRC > WR, so the firm will hire ________ workers than would be hired in a competitive labor market AND they are paid _______

deadweight loss

monopsonies creates