AP Micro Chapter 5 Factor Market

MRP in perf com product factor market =

change in TR

MRP in imperfect product but perf comp factor market =

change in TR

monopsony

imperfect in both product and factor market

In perf comp factor market, market determines ___

wage

4 scarce resources

land, labor, capital, entrepreneurship

the demand for a factor of production is

derived demand

most people get the largest share f their income from

factor markets

marginal revenue product MRP

the value of the additional output produced as a result of hiring an additional unit of a factor (change in TR)

Marginal resource cost MRC

the cost of hiring one more worker (or buying one additional unit or factor)

factors that shirt the demand curve in perf comp factor market

changes in price of goods, changes in the supply of other factors, changes in tech (good for workers)

Normal effect for supply curve of labor

substition effect > income effect

Not upward sloping part of supply curve

Income effect > substitution effect

why is part of the labor supply curve not upward sloping

when income > substitution; wage per hour so high that people aren’t having enough leisure time to do things like sleep

shifts of the labor supply cure

changes in preferences/social media, changes in popularity, changes in opportunities, changes in wealth (all assets, so when goes up people don’t work)

Marginal productivity theory of income distribution

the more MP, the more you get paid; the division of income among factors of production is determined by MP

Marginal productivity and wage inequality

compensating differentials (same occupation but different characteristics like more dangerous); differences in talent (all pro players don’t get paid the same); human capital (experience; education level; more human capital = higher wage usually)

other sources of wage inequality

Market power (unique or lots of ppl w same experience or education); efficiency wages (one paces pays more to retain workers); discrimination

is MP theory true?

Objections: evidence and fairness. Does it work? It depends

least cost combination and cost minimization rule

MP(Lworker)/theirwage. =. MP(last product)/priceofproduct