AP Microeconomics Unit 5

labor

What are the four factors of production?

Land, labor, capital, entrepreneurship

What are the 4 factor payments (name each payment and its factor)

Rent (land), wages (labor), interest (capital), profit (entrepreneurship)

Derived demand

When the demand for a resource is derived from the demand for the products that the resource helps produce

Why is demand for labor downward sloping?

As wage decreases, more firms are willing and able to buy labor/pay workers (as W decreases, Qd increases)

Why is supply for labor upward sloping?

As wage increases, more workers are willing and able to give up their leisure time to supply labor (as W increases, Qs increases)

Shifters of demand for labor

Price of output, productivity of worker, change in price of other resources (substitutes + compliments)

As the price of output increases, the demand for labor…

increases

As the productivity of workers increases, in the demand for labor…

increases

Shifters of supply of labor

Education + training, availability of altern ate jobs, immigration + movement of worker, cultural expectations, working conditions, preference for leisure

Will a binding minimum wage lead to relatively less unemployment when the demand for labor is elastic or inelastic?

Inelastic - even if wages increase, employers don’t significantly reduce the number of workers they hire → strong need for current workforce/hard to substitute labor with capital (ex. health care)

Marginal Revenue Product (MRP)

Additional revenue generated by an additional resourceM

MRP equation

Change in TR / Unit Change in Resource Quantity

Marginal Resource Cost (MRC)

Additional cost of an additional resourceMR

MRC equation

Change in TRC / Unit Change in Resource Q

What does wage rate (hourly, etc) equal?

MRC

Hire workers until…

MRP = MRC

If there is no point where MRP = MRC, workers should be hired as long as MRP is ________ than MRC

greater

Characteristics of a monopsony

One large firm hiring workers, worker’s can’t move jobs easily (not many options), firm = wage maker → not competing with other firms for workers, so can set (low) wages

A Tyson chicken plant in a small town is an example of a…

Monopsony

What is the rule when using two resources (labor + capital)?

MP_Labor / Price_Labor = MP_Capital / Price_Capital

If the two proportions in a scenario with two resources aren’t equal, the larger fraction is the resource that provides ____________ product per dollar

more

A firm’s decision to hire a factor of production depends on the ___________ of the factor

productivityH

How does a hiring firm evaluate a worker’s productivity?

MP of the factor, the factor’s price/MFC, and the price of the firm’s product/demand for the product the factor produces