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What is the difference between factor and product markets?
Factor Market: Firms Pay Individuals
Product Market: Individuals Pay Firms
Why is the Demand for Labor downward sloping?
The number of workers that businesses are willing and able to hire increases as the wage falls.
Why is the Supply of labor upward-sloping?
The number of workers that are willing and able to sell their labor increases as the wage increases.
What happens to the market wage and quantity if there is a binding minimum wage?
Wage increases and quantity of workers decreases
What increases if minimum wage is raised too much?
Unemployment
Define MRC
The additional cost of hiring one additional worker
Define MRP
The additional revenue generated by one additional worker
What is MRC equal to?
Wage
How do you calculate MRP?
MP * P
What are the shifts in demand for labor?
Changes in the price of output: If the price increases, the worker that produces the product becomes more valuable
Derived Demand
Productivity of worker
Changes in the price of subs/complements
If the price of a subsitute resource goes up the demand increases
If the price of complement resource goes up then the demand decreases
What are the shifts in supply of labor
working conditions
government regulations
immigrating and mobility of workers
cultural expectations
Workers in a PCM work for the same ____ which is set by the ____
wage, market
Characteristics of a PCM
many small firms hiring
identical labor
wage is constant
wage takers
Profit Maximization Rule
MRC = MRP
Least Cost Rule
MPx/Px = MPy/Py
profit maximizing rule for combining resources
MRPx/MRCx = MRPy/MRXy = 1
You want more of the ____, and less of the _____
greater value, lower value
The supply of labor for firms in perfect competition is perfectly ____
Elastic
If the government sets a binding min. wage, will the MRP of the last worker hired increase, decrease, or stay the same?
MRP will increase because firms will get more selective with who they are hiring due to a higher wage. Those with a higher MRP will be the ones still in employment.
Characteristics of a Monopsonisitc Market
One large firm hiring
Wage is higher than supply
Wage makers
In a Monopsonistic Market, does the MRC =Wage?
No
In a Monopsonistic Market, does the MRC =supply?
No
Where do monopsonies hire and pay?
Hire where MRC = MRP and pay where it intercepts with the supply curve
True or False: If the demand for houses increases, the wage of carpenters will increase and quantity will decrease
False
True/False: Assume brick and wood are subs. if the price of bricks increases, the price of wood will increase.
True
True/False: A binding min. wage leads to relatively less unemployment when the demand for labor is inelastic
True
True/False: A monopsony hires less workers and pays less than a PCM
True
whats another way to write the least Cost Rule?
MPx/MRCx = MPy=MRCy
Which of the following will occur in a given labor market when the wage rate rises?
The quantity of labor supplied would increase ( a movement along the supply curve)
