AP Micro - Unit 5

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12 Terms

1
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what are factors and what is considered when making decisions to employ them?

  • Factors: Resources (land, labor, capital)

  • considerations: productivity of the factor, cost of the factor (rent, wages, interest), price of the good/service

2
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labor market supply and demand def.

supply = willing and able workers

demand = many firms with jobs

<p>supply = willing and able workers</p><p>demand = many firms with jobs</p>
3
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wage differentials (why people paid more than others)

  • Human capital

    • ability

    • education

    • training

  • networking

  • discrimination

  • luck

4
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how minimum wage affects labor market

  • overall

    • creates unemployment

    • labor welfare increases

    • stops monopsonies

<ul><li><p>overall</p><ul><li><p>creates unemployment</p></li><li><p>labor welfare increases</p></li><li><p>stops monopsonies</p></li></ul></li></ul><p></p>
5
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determinants of factor demand

  • derived demand

    • driven by product demand

  • productivity of resource (Marg. Product)

    • better resources

    • education / training

    • technology

    • better prod. = more of good made = more workers needed

  • price of product (P)

    • P ^ = Qs ^ = Dfactor ^

  • related goods

    • changes in the price of complementary resources

6
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determinants of factor supply

  • immigration, emigration

  • age distribution (mandatory retirement, large old population will decrease supply)

  • working conditions (willingness dec., supply dec.)

  • education (able dec., supply dec.)

  • preferences for leisure

  • availability of substitute resource

    • automation, AI

    • harder to replace = S increases

7
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marginal revenue product (MRP)

  • change in total revenue / change in resource quantity

8
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marginal resource cost (MRC)

  • change in total resource cost / change in resource quantity

9
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what is the optimal amount of a resource?

MRP >= MRC

(in perfect competition only: MP * P = MRP) (b/c price is constant)

10
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labor market graph

<p></p><p></p>
11
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optimal combination of resources

  • All resources are variable

  • last dollar spent on each resource yields the same marginal product

  • MP(L) / P(L) = MP (C) / P(C)

    • where L = labor and C = capital

  • If MP/P for capital larger, then we will form more capital, fire more labor with lowest MP until MP/Ps are equal

    • diminishing returns, more capital decreases its marginal product, and less labor increases its marginal product

12
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monopsonistic markets

  • single buyer for a type of labor

    • “wage maker”

    • ex) The only hospital in a sparse rural area, if you’re a doctor, you can only get a job with that hospital

  • pays same wage to all

  • has to increase wage to attract more workers

<ul><li><p>single buyer for a type of labor</p><ul><li><p>“wage maker”</p></li><li><p>ex) The only hospital in a sparse rural area, if you’re a doctor, you can only get a job with that hospital</p></li></ul></li><li><p>pays same wage to all</p></li><li><p>has to <strong>increase</strong> wage to attract more workers</p></li></ul><p></p>