Demand, Labor & Input Markets
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Questions and Answers

What is the concept that describes the amount of demand for labor?

Demand for labor

What is the amount of output produced per unit of input called?

Productivity of an Input

What is the tendency of a firm to substitute away from a factor whose price has risen and towards a factor whose price has fallen called?

Factor of Substitution Effect

What is the term for the return to any factor of production that is in fixed supply?

<p>Pure Rent</p> Signup and view all the answers

What is the additional output produced by 1 additional unit of labor called?

<p>Marginal Product of Labor</p> Signup and view all the answers

The additional revenue a firm earns by employing 1 additional unit of input is called?

<p>Marginal Revenue Product</p> Signup and view all the answers

What does the Law of Diminishing Marginal Returns state?

<p>Employing an additional factor of production causes a relatively smaller increase in output.</p> Signup and view all the answers

What is the demand for resources that is dependent on the demand for the outputs those resources can be used to produce called?

<p>Derived Demand</p> Signup and view all the answers

What is the term for the tangible and intangible assets of a firm?

<p>Capital Stock</p> Signup and view all the answers

What is the flow that increases the stock of capital?

<p>Investment</p> Signup and view all the answers

What is the decline in an asset's economic value over time called?

<p>Depreciation</p> Signup and view all the answers

What is the market in which households supply their savings to firms that demand funds to buy capital goods called?

<p>Capital Market</p> Signup and view all the answers

What is a contract between a borrower and a lender, in which the borrower agrees to pay the loan at some time in the future, along with interest payments called?

<p>Bond</p> Signup and view all the answers

What is the part of the capital market in which savers and investors interact through intermediaries called?

<p>Financial Capital Market</p> Signup and view all the answers

Study Notes

Input Demand, Land & Labor Market

  • Demand for Labor: Businesses require labor and capital for production. Demand for labor describes the amount an economy or firm is willing to employ at any given time.
  • Productivity of an Input: The output produced per unit of input.
  • Input Markets: Firms demand inputs (labor) if households demand the good or service produced by that firm. Employees supply labor in exchange for wages.
  • Demand-Determined Price: The price of a good with fixed supply depends entirely on what firms and households are willing to pay.
  • Pure Rent: The return to a factor of production with a fixed supply.
  • Marginal Product of Labor: The additional output produced by one more unit of labor.
  • Marginal Revenue Product: The additional revenue a firm earns by employing one more unit of input (labor), which is the revenue from the output of the marginal unit of labor.
  • Law of Diminishing Returns: Increasing one factor of production will lead to smaller increases in output in the short run if other factors are fixed.
  • Derived Demand: The demand for resources is dependent on the demand for the goods/services those resources produce.
  • Factor of Substitution Effect: Firms substitute away from factors whose prices rise and towards factors whose prices fall.
  • Output Effect of Factor Price Increase (Decrease): When a firm reduces (increases) output in response to an increase (decrease) in a factor price, it demands less (more) of all factors.

Capital Market: Investment Decisions

  • Capital: Goods produced by the economy used as inputs for future goods/services.
  • Tangible Capital: Physical things used in production (buildings, equipment, inventories).
  • Social Capital: Nonmaterial resources (knowledge, skills) that contribute to future goods/services.
  • Goodwill: Intangible capital—marketing/advertising to create a brand name.
  • Human Capital: Skills, knowledge, and education that workers possess and yield value to the firm.
  • Capital Stock: Current market value of a firm's plant, equipment, inventories, and intangible assets.
  • Investment: A flow that increases the capital stock (new additions).
  • Depreciation: The decline in an asset's value over time due to wear and tear or obsolescence.

Forms of Capital Income

  • Interest: The payment for using money.
  • Interest Rate: Annual interest payment as a percentage of the loan.
  • Profits: Revenues exceed cost in a given period.
  • Stock Ownership: Claim on a firm. Owners receive a share of profits (dividends), and potentially an increase in stock value.
  • Stock (Common): Firm ownership claim, entitling owners to profits as dividends.
  • Dividend: Payment made to shareholders.

Other Financial Market Types

  • Commodity Markets: Facilitate commodity trading.
  • Derivatives Markets: Provide instruments for managing financial risk.
  • Future Markets: Provide standardized contracts for trading products at some point in the future.
  • Insurance Markets: Facilitate risk sharing.
  • Foreign Exchange Markets: Trade in foreign currencies.
  • Capital Income: Income earned from savings used through financial markets.

Imperfect Markets and Structures

  • Market Power: Firm's ability to raise prices without losing all demand.
  • Pure Monopoly: Single firm, no close substitutes, barriers to entry.
  • Barriers to Entry: Factors that prevent new firms from entering a market to compete.
  • Natural Monopoly: Single-firm production is most efficient due to large economies of scale (costs).
  • Patent: Exclusive rights to a product/process.
  • Network Externalities: A product's value increases with the number of users/consumers.
  • Rent-Seeking Behavior: Actions to preserve or enhance profits (e.g. lobbying).
  • Government Failure: Inefficient resource allocation due to government intervention.
  • Public Choice Theory: Public officials act in their self-interest.
  • Price Discrimination: Charging different prices to different customers.
  • Perfect Price Discrimination: Charging the maximum price each customer is willing to pay.
  • Partial Equilibrium Analysis: Examining individual market or firm equilibrium.
  • General Equilibrium: Situation where all markets simultaneously balance (supply equals demand).
  • Efficiency: Resource allocation resulting in minimum cost to produce what people want.
  • Market Failure: Inefficient resource allocation due to factors like imperfect information or externalities.

Market Structure Forms

  • Perfect Market: Many buyers and sellers trading homogenous goods. Prices are determined by supply/demand.
  • Imperfect Market: Significant barriers to market entry, or few buyers/ sellers influencing prices (e.g. monopoly, duopoly, oligopoly).

Types of Imperfect Market Structures

  • Monopoly: One seller, no close substitutes, significant barriers to entry.

  • Oligopoly: A small number of sellers, products may be either homogenous or differentiated, existence of barriers to entry.

  • Duopoly: Two firms dominate the market

  • Monopolistic Competition: Many firms offer similar but differentiated products, relatively easy entry, competition on aspects other than price.

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Description

Explore the key concepts of demand for labor, productivity, and the dynamics of input markets. This quiz helps you understand how firms, households, and prices interact in the labor market, alongside topics like marginal product and pure rent. Test your knowledge on the factors that influence the demand for labor and other inputs.

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