Economics Chapter: Labor and Resources

The four factors of production are the inputs used to produce goods and services. These factors include labor, capital, entrepreneurship, and land.

Profit is the reward earned by entrepreneurs for taking risks, organizing resources, and combining the other factors of production to create goods and services. It is the factor price for entrepreneurship.

A nonrenewable natural resource is a finite resource, meaning it is limited in supply and cannot be replenished at a rate comparable to its consumption. Once it's used up, it's gone.

A renewable natural resource is a resource that can be replenished naturally over a relatively short period of time.

A nonrenewable natural resource is a resource that is depleted as it is used. Examples include fossil fuels like oil and natural gas. These resources take millions of years to form.

Oil is a nonrenewable natural resource, as it is formed over millions of years from organic matter buried under the Earth's surface. Once extracted and burned, it cannot be easily replenished.

Water from the Mackenzie River is a renewable natural resource because it can be used repeatedly as long as it is not polluted or overused. The water cycle replenishes the river through rainfall and snowmelt.

The factor price for a factor of production is the amount paid for its use. For example, the factor price for labor is wages, the factor price for capital is interest, the factor price for land is rent, and the factor price for entrepreneurship is profit.

The point at which a firm maximizes profit by hiring additional workers until the value of the last worker's marginal product equals the wage rate.

The additional output produced by hiring one more worker.

The additional revenue generated by selling the output of one more worker.

A shift in the demand curve for labor caused by a change in the price of the firm's output.

A change in the quantity of labor demanded due to a change in the wage rate.

The principle that a firm will continue to hire workers as long as the value of the marginal product of labor exceeds the wage rate.

The change in the demand for labor caused by factors such as changes in the price of other inputs, technology, or the price of the firm's output.

The additional cost incurred by hiring one more worker.

The revenue a firm receives from selling the output produced by one more worker. Calculated by multiplying the price of the good by the marginal product of labor.

If a firm can hire workers at a lower cost than the extra revenue they generate (VMPL), it should hire more workers to increase profits.

Hiring more workers will lead to higher production costs and, potentially, lower profits because the firm would be spending more on labor than the extra revenue generated by the workers.

The firm should keep hiring workers until the VMPL equals the wage rate. This point maximizes the difference between revenue and cost.

When the price of a firm's output increases, the value of marginal product of labor increases. This happens because each worker's output is now worth more.

A technological advancement that improves a worker's productivity will increase the VMPL. This is because the same worker can now produce more output with the same amount of effort.

If the price of a substitute for labor (e.g., robots) decreases, the demand for labor might decrease. This is because firms might choose to replace workers with cheaper alternatives.

The decrease in the price of output leads to a decrease in the VMPL because each unit of output now generates less revenue, reducing the value of each worker's contribution.

A firm's VMPL curve represents its demand curve for labor. The curve shows the amount of labor the firm is willing to employ at different wage rates.

The factor price that firms pay for using labor in production, representing the cost of one unit of labor (e.g., hourly wage).

The total amount of labor a firm will hire at a given wage rate. This is determined by comparing the VMPL with the wage rate.

The Hotelling Principle states that the expected increase in the price of a nonrenewable resource over time should be equal to the interest rate. In simpler terms, it means that the price of a resource should rise at a rate that reflects the opportunity cost of using it today instead of preserving it for future use.

The market supply of land is considered perfectly inelastic in the short run. This means that the quantity of land available for use is fixed, regardless of the price. The amount of land doesn't change quickly, even if prices increase.

The demand for capital is determined by its value of marginal product (VMP). This means that businesses will demand more capital when it is expected to generate higher profits. The demand for land is also determined by its VMP, which is the value of the additional output that can be produced from using an extra unit of land.

The supply of land is perfectly inelastic, meaning the quantity of land available doesn't change even with price changes. This is because land is a fixed resource.

The supply of a nonrenewable natural resource is influenced by factors like the known reserves, the scale of current production facilities, and the expected future price. It's not determined by the value of marginal product, as this only influences demand.

Unions try to raise the minimum wage to increase the demand for labor in their industry. This is because a higher minimum wage makes workers more expensive, leading companies to need to hire more workers to produce the same amount of goods and services.

When a single buyer controls the entire market for a specific type of labor, they can influence the wage rates and employment levels. This is called a monopsony labor market.

A bilateral monopoly is when a single buyer (monopsony) and a single seller (monopoly) are involved in a negotiation, such as a union negotiating with a company. This creates a unique dynamic where both sides have significant bargaining power.

In a monopsony, the wage rate is lower and the level of employment is lower compared to a perfectly competitive labor market with identical conditions. This is because the monopsonist has the power to suppress wages.

A strike or lockout in a bilateral monopoly is often due to miscalculations about each party's ability to withstand the consequences of a prolonged conflict. They might underestimate the other side's willingness to hold out.

A union's power depends on various factors, including their ability to organize workers, the demand for the labor they represent, and the availability of substitutes. Higher demand for labor and difficulty in finding replacements make unions stronger.

Increasing demand for the goods their workers produce benefits unions. This increases the demand for labor, leading to higher wages and potentially better working conditions for union members. A bigger market for the product means more workers needed.

Reducing barriers to imports hurts unions because it increases competition from foreign producers. This could lower demand for domestically-produced goods, leading to lower demand for labor and potentially lower wages for union members. Imagine cheaper goods, and less demand for local workers.