The Principles of Economics
18. The Markets for the Factors of Production
-factors of production: the inputs used to produce goods and services.
18-1 The Demands for Labor
18-1a The Competitive Profit-Maximizing Firm
-In this firm two assumptions are made: competition exists in both the product and input markets, and the firm is a profit maximizer.
18-1b The Production Function and the Marginal Product of Labor
-production function: the relationship between the quantity of inputs used to make a good and the quantity of output of that good.
-marginal product of labor: the increase in the amount of output from an additional unit of labor.
-diminishing marginal product: the property whereby the marginal product of an input declines as the quantity of the input increases.
18-1c The Value of the Marginal Product and the Demand for Labor
-value of the marginal product: the marginal product of an input times the price of the output.
-A competitive firm hires workers until the marginal product of labor's value is equal to the wage.
18-1d What Causes the Labor-Demand Curve to Shift?
-The output price and technological change causes the labor-demand curve to shift.
-Technological change doesn't benefit all workers.
-The amount of output a typical U.S. worker produced between 1960 and 2015 increased by 195%.
18-2 The Supply of Labor
18-2a The Trade-Off between Work and Leisure
-The income effect and substitution effect are conflicting effects on someone's labor-supply decision.
-The trade-off can cause a backward bending supply curve of labor.
-An income effect is an effect during the change in wage where the higher wage increases income and the demand for leisure.
-A substitution effect is when the higher wage increase the cost of leisure but reduces the demand for it.
18-2b What Causes the Labor-Supply Curve to Shift?
-Changes in tastes and alternative opportunities, and immigration cause the labor-supply curve to shit.
-The women's participation in the labor force increases as a change in tastes.
18-3 Equilibrium in the Labor Market
18-3a Shifts in Labor Supply
-95% of U.S. citizens would annually benefit from a higher number of highly educated foreigners working legally after immigrating to the U.S.
-An increase in immigration increases the supply of physicians, while the demand for apples and apple pickers also increases.
18-3b Shifts in Labor Demand
-Productivity by output per hour grew by 2.1% each year from 1959 to 2012.
-Productivity is key in acquiring a higher standard of living.
-Physical capital. human capital, and technological knowledge are key in determining levels of productivity.
18-4 The Other Factors of Production: Land and Capital
-capital: the equipment and structures used to produce goods and services.
18-4a Equilibrium in the Markets for Land and Capital
-When someone pays to use a factor for a limited period of time, they're paying a rental price.
-"Labor, land, and capital each earn the value of its marginal contribution to the production process."
18-4b Linkages among the Factors of Production
-When an event changes the supply of any factor of production, the earnings of all the factors can be altered.
-The theory of the neoclassical theory of distribution explains how labor, land, and capital are compensated for the roles they play in the production process.