9.1 Factor Markets

• Marginal revenue of product labor: revenue generated by one additional unit of labor

9.2 Changes in Factor Demand and Factor Supply

• How does the demand curve shift?

  • Tastes (preferences) of costumers

  • Prices of related goods

  • Income of buyers

  • Number of buyers

  • Expectations for the future

  • Acronym: TRIBE

• Marginal utility: utility gained from consuming one more unit of a good

• Total utility: sum of all marginal utility values gained from each unit consumed

• Consumer surplus: value a buyer receives from the purchase of a good in excess of what the customer pays for it

• Product surplus: price a seller receives for a good - minimum price they would be wiling to supply a quantity of the good

9.3 Profit-Maximizing Behavior in Perfectly Competitive Factor Markets

• Important antitrust legislation

  • Sherman Act

  • Clayton Act

  • Robinson-Patman Act

  • Celler-Kefauer Act

• Vertical merger: merger of firms during steps in the production process

• Conglomerate merger: merger of firms from unrelated industries

• Horizontal merger: merger of direct competitors

9.4 Monoponistic Markets

• Monopsony: when one firm is the only purchaser of labor

• Marginal factor cost (MFC): additional cost of one more unit of labor

9.5 Socially Efficient and Inefficient Market Outcomes

• Social efficiency: faire and optimized allocation of economic resources in a society

  • Opposite → causes ineffective market incomes

• Natural monopolies: created when fixed costs are so high → second firm cannot enter the market

9.6 Externalities

• Market failure: when resources are not allocated in an optimal manner

• When do market failures occur?

  • Imperfect competition

  • Externalities: costs/benefits felt beyond those causing the effects

  • Negative externalities → overconsumption

  • Positive externalities → underconsumption

  • Public goods: goods that many individuals benefit from at the same time

  • Imperfect information: buyers/sellers do not have complete knowledge about available markets, prices, products, costumers, suppliers

Marginal private cost (MPC): cost paid by the customer for a unit of good

Marginal external cost: cost paid by other people (aside from the buyer) for a unit of good

9.7 Public and Private Goods

Nonrival good: consumption of that good does not affect consumption by others

Nonexcludable goods: cannot be held back from those who want it

Free rider: attempts to benefit from public good without paying for it

9.8 Income and Wealth Inequality

• Labor unions attempt to:

  • Increase demand for labor

  • Decrease supply of labor

  • Negotiate higher wages

• Gini coefficient: uses Lorenz curve to calculate income equality

• Poverty line: official benchmark for poverty

  • Set at 3x minimum food budget by Department of Agriculture