AP Micro -- Unit 5

firms buy

resources (land, labor, capital)

inputs produce

units of output

marginal product

output from each unit of input

Marginal Revenue Product (MRP)

marginal product x price

Marginal Factor Cost

supply of labor

MRP in labor markets

demand for labor

perfectly competitive factor market

firm can purchase each new unit of labor for the same cost (flat MFC)

monopsony

market with one employer

costs a lot of money to hire new employees

Lorenz Curve

illustrates income distribution by quintile

Gini Coefficient

area between curves vs entire area

quintiles

20% blocks to measure income distribution

higher Gini coefficient

less evenly distributed income

lower Gini coefficient

more evenly distributed income

progressive marginal tax rates

higher incomes pay a higher tax rates

income redistribution

Social Security, welfare, subsidized healthcare (Medicare/Medicaid)

optimal mix

MP/W = MP/R