unit 5 econ final review

12th grade ap microeconomics

perfectly competitive labor market

- many small firms hiring workers
- workers with identical skills
- constant wage
- firms hire at a wage set by the industry (workers are wage takers)

derived demand

the demand for resources is determined (derived) by the products they help produce

marginal resource cost (MRC)

- additional cost of an additional resource (worker)
- MRC = wage set by market and is constant in perfectly competitive labor markets
- Δtotal cost/ Δinputs

marginal revenue product (MRP)

- additional revenue generated by an additional worker (resource)
- MRP = marginal product of resource x price of product
- Δtotal revenue/ Δinputs

MRP = MRC

continue to hire until

demand for labor

different quantities of workers that firms will hire at different wages

law of demand for labor

inverse relationship between wage and quantity of labor demanded

supply for labor

different quantities of workers that are willing to work at different wages

law of supply for labor

direct relationship between wage and quantity of labor supplied

tradeoff

work and leisure for workers

firms

demanders of labor

individuals

suppliers of labor

higher wages

gives workers incentives to leave other industries or give up leisure activities

wage/ price of labor

set by the market

demand for product increases

MRP increases causing demand to shift right

shifters of resource demand

- changes in demand for product
- changes in productivity
- changes in price of other resources (substitutes, complements)

shifters for supply of labor

- number of qualified workers
- gov regulation/licensing
- personal values (leisure, societal roles)

labor market imperfections/ reasons for wage differences

- misleading job information
- geographical immobility
- unions
- wage discrimination

minimum wage

- gov sets up wage floor to help workers bc the equilibrium wage is too low
- result: Qd ↓, Qs↑

least cost rule

monopsony

- one firm hiring workers
- workers relatively immobile
- wage maker: increase wage to hire additional workers

how unions increase wage

- convince consumers to buy only union products
- lobbying gov officials to increase demand
- increase price of substitute resources

nondiscriminating monopsony

employer who must increase the wage offered to all workers in order to attract more workers (MCL > wage)

discriminating monopsony

- pays the higher wage only to the extra worker (MCL = wage)
- illegal if based on gender, age, religion, or race
- tends to be cheaper