Podcast
Questions and Answers
What is the consequence of imposing a minimum wage above the equilibrium wage in a labor market?
What is the consequence of imposing a minimum wage above the equilibrium wage in a labor market?
The market for land can be analyzed similarly to the labor market.
The market for land can be analyzed similarly to the labor market.
True
What causes the supply curve for labor to shift to the left?
What causes the supply curve for labor to shift to the left?
Government policies making professional licenses harder to obtain.
An increase in the demand for labour typically results in a rise in the ________ rates.
An increase in the demand for labour typically results in a rise in the ________ rates.
Signup and view all the answers
Match the following scenarios with their effects on the labor market:
Match the following scenarios with their effects on the labor market:
Signup and view all the answers
What is the form of payment for land in factor markets?
What is the form of payment for land in factor markets?
Signup and view all the answers
Demand for a factor of production is independent of the output that the input helps to produce.
Demand for a factor of production is independent of the output that the input helps to produce.
Signup and view all the answers
What does MRP stand for in factor markets?
What does MRP stand for in factor markets?
Signup and view all the answers
The form of payment for labour in factor markets is called __________.
The form of payment for labour in factor markets is called __________.
Signup and view all the answers
Match the following factors of production with their corresponding forms of payment:
Match the following factors of production with their corresponding forms of payment:
Signup and view all the answers
In the circular flow model, who are the suppliers in the factor markets?
In the circular flow model, who are the suppliers in the factor markets?
Signup and view all the answers
A firm could be a perfect competitor in the factor market while being a perfect competitor in the product market.
A firm could be a perfect competitor in the factor market while being a perfect competitor in the product market.
Signup and view all the answers
What does MRP depend on?
What does MRP depend on?
Signup and view all the answers
What does Marginal Revenue Product (MRP) equal?
What does Marginal Revenue Product (MRP) equal?
Signup and view all the answers
The demand for labor is primarily for its own sake.
The demand for labor is primarily for its own sake.
Signup and view all the answers
What happens to the demand curve for labor if the Marginal Revenue Product increases?
What happens to the demand curve for labor if the Marginal Revenue Product increases?
Signup and view all the answers
The market supply curve for labor is _____-sloping.
The market supply curve for labor is _____-sloping.
Signup and view all the answers
Match the following factors with their impact on demand for labor:
Match the following factors with their impact on demand for labor:
Signup and view all the answers
What does the law of diminishing returns imply about the labor supply curve?
What does the law of diminishing returns imply about the labor supply curve?
Signup and view all the answers
What is the opportunity cost of one hour of leisure when the wage is $20/hr?
What is the opportunity cost of one hour of leisure when the wage is $20/hr?
Signup and view all the answers
An increase in the wage rate results in a decrease in the quantity of labor supplied.
An increase in the wage rate results in a decrease in the quantity of labor supplied.
Signup and view all the answers
What is the equilibrium wage determined by?
What is the equilibrium wage determined by?
Signup and view all the answers
If the Marginal Revenue Product (MRP) of labour is greater than the wage rate, firms should reduce the number of workers they hire.
If the Marginal Revenue Product (MRP) of labour is greater than the wage rate, firms should reduce the number of workers they hire.
Signup and view all the answers
List one factor that can impact the supply of labour.
List one factor that can impact the supply of labour.
Signup and view all the answers
The equilibrium wage equals the __________ of labour at equilibrium.
The equilibrium wage equals the __________ of labour at equilibrium.
Signup and view all the answers
Match the following terms with their definitions:
Match the following terms with their definitions:
Signup and view all the answers
What happens in the labour market when a minimum wage is set above the equilibrium wage?
What happens in the labour market when a minimum wage is set above the equilibrium wage?
Signup and view all the answers
An increase in the value of leisure leads to an increase in the supply of labour.
An increase in the value of leisure leads to an increase in the supply of labour.
Signup and view all the answers
What does an employer maximize by hiring workers until MRP equals wage rate?
What does an employer maximize by hiring workers until MRP equals wage rate?
Signup and view all the answers
What happens to the equilibrium wage when the demand for shirts increases due to a large export market opening?
What happens to the equilibrium wage when the demand for shirts increases due to a large export market opening?
Signup and view all the answers
An increase in the number of workers in the garment industry always leads to higher wages.
An increase in the number of workers in the garment industry always leads to higher wages.
Signup and view all the answers
What is Marginal Revenue Product (MRP)?
What is Marginal Revenue Product (MRP)?
Signup and view all the answers
The concept that represents the change in total cost resulting from the employment of an additional unit of input is called _______.
The concept that represents the change in total cost resulting from the employment of an additional unit of input is called _______.
Signup and view all the answers
Which of the following effects does a labor surplus have on wages?
Which of the following effects does a labor surplus have on wages?
Signup and view all the answers
In a perfectly competitive market, product prices are uniform across all firms.
In a perfectly competitive market, product prices are uniform across all firms.
Signup and view all the answers
How does immigration affect the labor supply in the garment industry?
How does immigration affect the labor supply in the garment industry?
Signup and view all the answers
Study Notes
Factor Markets
- Factor markets are where buyers and sellers of factors of production (inputs) meet.
- These inputs include land, labor, capital, and entrepreneurship.
- The payment for the factors of production are rent, wages, interest, and profit.
- Households sell factors of production in factor markets, and firms buy them.
Revisiting Factors of Production
- Factors of production and their forms of remuneration:
- Land: Rent
- Labor: Wages
- Capital: Interest
- Entrepreneurship: Profit
Circular Flow Model
- The circular flow model shows the flow of resources and goods/services between households and firms.
- Households supply factors of production to factor markets.
- Firms purchase factors of production in exchange for rent, wages, interest, and profit.
- Firms then use these factors to produce goods and services.
- Then firms sell goods and services to households in product markets.
- Households then buy the goods and services produced.
Factor Markets
- Factor markets are like other markets, with buyers and sellers exchanging goods or services.
- In factor markets, the good or service is a factor of production, or resource.
- Derived Demand: Demand for an input depends on demand from the output that the input helps produce. A firm employs factors up to the point where the additional revenue equals the cost.
- The demand for input is derived from the demand for the output produced.
Factor Markets - Firm Competition
- A firm can be a perfect competitor in the product market, but not in the factor market, and vice versa.
- In factor markets, businesses are the demanders and households are the suppliers of factors (e.g., labor).
Marginal Revenue Product (MRP)
- MRP is the change in total revenue resulting from employing one extra unit of an input.
- MRP = marginal revenue × marginal product
- A firm will continue hiring workers until the MRP of labor equals the wage rate.
Deriving Marginal Revenue Product
- MRP = (change in total revenue) / (change in quantity of labor)
- MRP = MR × MP
Derived Demand for Labor
- The market demand for labor is a downward-sloping curve, reflecting an inverse relationship between wage and quantity of labour.
- This is due to the law of diminishing returns and substitutability of labor for capital.
- Labor demand is derived demand, meaning labor is not demanded in itself but for its ability to produce goods and services.
- Demand increases when the demand for the product or service increases because more labour is required.
Demand for Labour
- Market demand for labor is the sum of each firm's MRP for labor.
- Factors that affect labor demand:
- Product price
- Product demand
- Productivity of labor
- Change in price of capital
Supply of Labor
- Labor supply is upward sloping and shows the relationship between wage rate and quantity of labor supplied.
- The labor supply curve reflects how workers respond to changes in the opportunity cost of leisure.
- Supply factors include number/availability of workers, population, age, value of leisure, wages in alternative occupations and improvements in occupational mobility.
Equilibrium in the Labor Market
- Equilibrium wage is where labor demand and labor supply intersect.
- Firms hire workers until the MRP of labor equals the wage rate.
MRP and the Wage Rate
- The table shows MRP is in relation with wage rates and worker numbers.
- As workers employed increases, MRP decreases and workers' wage rate.
Minimum Wage
- Minimum wage laws create a price floor above the equilibrium wage, leading to labor surplus.
Shifts in Labor Market Equilibrium - Demand
- An increase in demand for shirts increases labor demand, leading to higher wages and employment.
Shifts in Labor Market Equilibrium - Supply
- Increased immigration increases labor supply, leading to lower wages.
Marginal Resource Cost (MRC)
- MRC is the change in total cost from employing one extra unit of an input.
- MRC = (change in total cost) / (change in quantity of input)
- MRC = change in total cost/ change in labor
Summary
- Labor demand and supply determine equilibrium wage.
- Shifts in demand or supply affect wages.
- Profit maximization ensures equilibrium wage equals MRP.
- Other factor markets (e.g. land, capital) are analyzed similarly.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
This quiz covers the essential concepts of factor markets and the circular flow model in economics. Explore how factors of production are sold and bought, and the remuneration associated with each factor. Understand the interaction between households and firms in the economy.
