AP MICRO UNIT 5: Resource/Factor/Labor Markets

individuals

Who are the suppliers in a resource/factor market?

firms

Who are the demanders in a resource/factor market?

wage

What is measured on the y axis of a Labor market graph?

above

Are binding wage floors set above or below the equilibrium wage?

employers cannot pay a wage below the legal wage floor

What is a wage floor?

surplus of workers/unemployment

What does #1 show on the graph?

inverse

There is a(n) _______ relationship between wage and the quantity of workers demanded.

direct

There is a(n) _______ relationship between wage and the quantity of workers supplied.

the market

In a perfectly competitive labor market, each worker supplies their labor at a wage set by...?

Marginal Resource Cost or the wages of various quantities of workers

What does the labor supply curve represent?

because the additional cost for each worker is constant

Why is the supply of labor equal to MRC?

downward sloping

Is the demand for labor curve downward sloping or upward sloping?

because each additional worker generates less additional production and therefore less revenue for the firm

Why is the demand for labor downward sloping?

Hire workers until MRP equals MRC

What is the profit maximizing hiring rule for a firm?

The additional revenue generated for each additional unit of output produced

What is marginal revenue?

marginal revenue product (MP x P) or the additional revenue generated for the firm by various quantities of labor

What does the demand for labor curve represent?

The additional cost for hiring each additional input (worker)

What is marginal resource cost?

horizontal

The supply curve for a typical firm hiring in a perfectly competitive labor market is...?

The market

In a perfectly competitive labor market, the wage is set by...?

Markets in which individuals/households purchase the goods and services that firms produce

What is a product market?

Markets in which individuals/households sell and firms buy resources (land, labor, capital) or the factors of production

What are resource markets?

Marginal production times the market price of the good produced (MP x P)...it represents the value of each additional worker to the firm.

What is the formula to find marginal revenue product?

the additional output generated by each additional worker

What is marginal product?

The wage

In a PC labor market, the marginal resource cost (MRC) is equal to what?

constant

In a perfectly competitive labor market, is the MRC constant or variable?

• The productivity of the resource.

• The market value or price of the good it helps produce.

The demand for resources (labor) is dependent on what?

the marginal product of an input (labor) decreases as the quantity of the input (labor) increases

What does the law of diminishing marginal product state?

Diminishing marginal product

As more and more workers are hired at a firm, each additional worker contributes less and less to production because the firm has a limited amount of equipment. This is an example of what?

It decreases

As the number of workers hired increases, what happens to the marginal product of labor of those workers?

labor

What is the most important factor of production?

It decreases

In a PC labor market, what happens to the equilibrium wage when the supply of labor increases?

It would increase or shift to the right.

An increase in immigration to the United States would have what impact on the supply of labor?

The demand for the product produced by the labor.

What is the demand for labor derived from?

It would cause it to shift to the right, therefore increasing wages.

An increase in the market price of a product would have what impact on the labor demand curve for the workers who produced that product?

They would decrease or shift to the left, increasing the equilibrium wages/salaries of those workers.

If the government increases the licensing standards to become a teacher, lawyer, doctor, what impact would this have on the labor supply curves for those professions?

The marginal productivity of each additional worker (MP).

The demand for labor is dependent on the market price of the goods produced by that labor and on...?

direct

What is the relationship between how productive you are as a worker and the demand for your labor? Is it direct or indirect?

The least cost hiring rule: use this formula: MPl/Pl = MPk/Pk

As an employer, I need to decide should I buy more capital goods (machines, tools, computers) or hire another worker. What rule should I use to help me decide?

When there is only one firm that is hiring. They have a monopoly on the buying of labor.

When does a monopsony exist?

a monopsony

What type of labor market is illustrated by this graph?

the wage they're willing to work for (the supply of labor curve)

In a monopsony labor market, the marginal resource cost of each unit is greater than what?