AP Microeconomics Unit 5

Factor Market

market in which firms purchase the factors of production from households

Factors of Production

Land, labor, and capital, entrepreneurship ; the resources that are used to make all goods and services

Wages

An amount of money paid to an employee at a specified rate per hour worked

Interest

payment made for the use of borrowed money or payment for capital

Rent

A fee charged for the use of property or land

Productivity

The value of a particular product compared to the amount of labor needed to make it.

Output Price

How much the firm can sell that product for in the market

Factor Cost

Cost of the factors of production used to produce final goods

Marginal Revenue Product

The change in total revenue when an additional unit of a resource is employed, other things constant

Determinants of Labor Supply

the forces that influence how many hours workers are willing and able to supply their labor at a certain wage rate

Determinants of Labor Demand

One of the external factors that influences labor demand.

Monopsony

a market structure in which there is only a single buyer of a resource

Labor Supply Curve

A curve that shows the quantity of labor supplied at different wage rates. Its shape depends on how households react to changes in the wage rate.

Labor Demand Curve

a graph that illustrates the amount of labor that firms want to employ at each given wage rate

Labor-Leisure Tradeoff

Tradeoff faced by individuals between the amount of time spent engaged in productive work for which they earn a wage and leisure activities that generate utility.

Perfectly Competitive Factor Market

A large number of buyers in the factor market - Each firm is acquiring a very small amount of resources compared to the entire market

Marginal Factor Cost

the additional cost of employing an additional unit of a factor of production

Marginal Product

the increase in output that arises from an additional unit of input